USD/JPY: Intervention today vs October

Brian Twomey Brian's Investment

USD/JPY market prices trade opposite to BOJ interest rates. If BOJ lowers interest rates then USD/JPY rises. The same principle exists for JPY/USD. For JPY/USD is the official trade indicator because JPY/USD correlates 100% to BOJ interest rates as is the case for every exchange rate in every nation. Its impossible for exchange rates not to correlate to interest rates at 100%.

BOJ interest rates dropped everyday last week to force JPY/USD lower and USD/JPY higher. Comments from Ueda and BOJ members reflects USD/JPY in relation to Japanese interest rates because USD/JPY is the big mover to JPY/USD.

USD/JPY began last week at 137.95 and rose to 140.71 or 276 pips and closed at 140.58. How did USD/JPY rise by the BOJ interest rates. USD/JPY rose 276 pips on a drop of 28 interest rate points or 55 pips per day and 5.6 interest rate points.

USD/JPY last week rose 276 pips Vs JPY/USD drop by 168 pips on overall 28 point change in BOJ interest rates. If BOJ drops interest rates and USD/JPY rises then we must impart if Fed rates trade lower then BOJ interest rates rise to force USD/JPY lower and JPY/USD higher.

The USD/JPY vs JPY/USD relationship factors as USD/JPY 14 and 15 pip moves to JPY/USD at 0.71 and 0.81 based on a 0.001 change to interest rates. USD/JPY is most affected and moves best to interest rate changes in relation to JPY/USD. USD/JPY is guaranteed minimal moves at 14 and 15 pips and ordained by the BOJ.

The question to intervention is not necessarily the present exchange rate traded in markets but interest rates in relation to the exchange rate. The vital question then becomes are conditions ripe for intervention. Today's conditions for the case of intervention is the exact same from the last BOJ intervention Oct 22 which says the BOJ has every reason to intervene at anytime.

The overall question to the October 22 intervention at 150.00's when DXY traded 114.00's is why intervene. DXY at 114.00's traded miles above the extraordinary 50 year monthly average at 99.00's which means USD/JPY at 150.00's had to trade far above its 50 year month average. Both were ready to drop substantially by no other choice.

BOJ intervention at 150.00's while DXY traded 114.00's reveals central banks view very short term and fail to factor long term exchange and interest rate positions.

USD/JPY 140.03 is the beginning to view possible intervention.

131.76, 144.41 and 148.80.

140.17 and 139.89.

127.84, 146.70, 153.37.

From 148.80 to 140.03 = 877 pips and 1334 pips from 153.37 to 140.03.

USD/JPY October 22 at 151.93. What did October 22 look like for BOJ interest rates and USD/JPY.

143.26, 156.52, 161.11.

152.08 and 151.77.

139.77, 158.53, 165.14.

161.11 minus 151.93 = 918 pips.

165.14 minus 151.93 = 1321 pips. Now compare above and below at 140.03 and 151.93 = 877 pips Vs 918 pips and 1334 pips Vs 1321. Same numbers to distance from present exchange rates today and OCT 22. Because interest rate difference was 70 points from today to OCT 22.. BOJ interest rate changed 70 points in 7 months.

Exchange rates are in the same position today as the October 22 intervention. The conditions in exchange rate terms are ripe for intervention. The only difference was the interest rate but that was the decision to intervene Oct 22.

Author

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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