It’s a new week but the key focus in the FX market is still on the Japanese yen. After a minor bounce back on Friday, USD/JPY is now under heavy pressure again as it falls through the 155.00 level for the first time since February this year.
That is a big, big blow to dip buyers and from a technical perspective, opens up the door for a further downside run if sustained.
The daily chart above shows the significance of the break, with it also cracking under key daily resistance near 155.50.
As mentioned earlier:
“Be it any real intervention or yen shorts/speculators bailing for just a bit last week, the line on the charts is clear. The key risk now is on any break below the 155.00 level. Hold the line and dip buyers will stay in with a shout to try and work towards a rebound. But break below, and sellers will then find fresh legs to keep this downside run going. The next key downside target will then be the January and February lows closer to 152.00-25.”
The yen is definitely finding some much needed relief not just from the technicals here but some slight shifts in the fundamental side too.
For one, last week saw a notable upturn in more hawkish BOJ expectations. However, I would argue that traders have definitely reached the limits of pricing this factor in. So, that should not lead to too much upside for the yen in terms of riding off any BOJ decision next.
The second, is this tidbit about the GPIF potentially weighing up a shift in its asset allocation strategy. Now, this isn’t anything new. Japan finance minister Katayama has touted this since July already.
However, there has been a report since last week that the GPIF management committee had an unusual meeting on 21 August – its first publicly announced meeting in a holiday month in seven years.
The agenda reportedly included a report on operation matters such as carrying out asset allocations, despite the committee having concluded in March that a review of its holdings wasn’t needed. So, this adds to more speculation that the GPIF may be poised to announce a shift in its allocations toward domestic assets in the future.
For some context, the current allocation does already allow some added flexibility to increase domestic asset holdings. The GPIF under its current plan allows a 6% deviation range around its target allocation (25%) for domestic bonds.
A formal announcement may only come later in October though, if at all. So, just keep this in mind if anything else.
This article was written by Justin Low at investinglive.com.