Trading USD/JPY? Here Are Three Things You Have to Watch Out For!

We’ve been seeing more interesting action on USD/JPY than American Idol these past few weeks. And so, I thought I’d take the time to look at some factors that could move the pair in the coming days. Here they are:

Ben Bernanke’s speech

Fed Reserve Chairman Ben Bernanke will give a speech tomorrow, Monday, at 5:15 pm GMT.

I’m pretty sure market participants will have their ears out for what the Fed head honcho will have to say. In his last speech, during the most recent FOMC Statement, he sounded optimistic, acknowledging the recent improvements in the economy and didn’t seem fazed by the impact of the sequester.

Some naysayers think Big Ben’s positive tone is too good to last though. It would be a good idea to listen in on what he has to say. If we hear any change in his rhetoric, we could see the dollar get sold off. Should he drop any hints about the Fed keeping QE in place for an extended period of time, I wouldn’t be surprised to see USD/JPY trade lower…and neither should you.

Emergency meeting from the BOJ?

Perhaps the biggest letdown in last week’s trading was the BOJ’s new head, Haruhiko Kuroda.

On his first day on the job, the uber dovish ex-Asian Development Bank President promised that the BOJ would get Japan out of deflation under his very watchful eye. He said that the central bank would step up its asset purchases as well as promising to “do whatever it takes” in order for the BOJ to hit its 2% inflation target within two years.

These are pretty darn bold promises but they’re nothing new. Most traders were bracing for specifics regarding the bank’s monetary policy options but he didn’t give the markets any of that. He was also vague on the prospect of the central bank having an emergency meeting ahead of its scheduled meeting on April 3 to 4.

Of course, this led to speculation that maybe Kuroda couldn’t walk all the talk.

I wouldn’t be too sure about that yet though. He did mention that he doesn’t want to be predictable. Perhaps he’s only taming market expectations? With that said, be wary of news coming out of the BOJ. Who knows, the central bank could announce an emergency meeting for them to talk about more stimulus measures when we least expect it and send USD/JPY skyrocketing!

U.S. Bond Yields

USD/JPY and U.S. Treasury yields have been known to share a positive correlation. Let me explain.

U.S. Treasury bonds are considered as safe haven assets, attracting demand when risk aversion is in play. Conversely, investors tend to shy away from bonds when risk appetite is up because they are more confident in seeking “riskier” assets.

The lack of demand for Treasuries consequently lead to higher yields as the government tries to attract debt-holders. Therefore, rising bond yields is typically taken as a sign that the U.S. economy is doing well.

However, over the past couple of weeks, U.S. data has been printing positive one after another but yields on 10-year bonds have been dropping. What gives??

Well, it would seem that investors seeking safety from their concerns about Cyprus and a potential contagion in the euro zone. Some market analysts say that until we see any improvement in yields, gains on USD/JPY would be limited.

US 10-year bond yields vs USD/JPY

So, what do you think? Would you buy or sell USD/JPY this coming week? Let us know by voting in the poll below!