Higher Yields Will Mean Unrealized Losses On Japanese Government Bonds

Analysis Of The EUR/JPY Pair Movement

Yen shot up on Tuesday after the Bank of Japan made a very bold decision on monetary policy. However, what is more important is the statements of Governor Haruhiko Kuroda, which gave investors an indication of what to expect when the policy ends.

Exchange Rates 21.12.2022 analysis

Yesterday, Kuroda shocked markets by announcing that he will allow 10-year bond yields to rise to around 0.5%. This is obviously a strategic adjustment to buy time in determining the yield curve next year following the changes in central bank policy, when interest rates are forecast to rise. Currently, the yield on 10-year Japanese securities is at 0.46%. This has led to a rise in Japanese bank stocks as investors are waiting for higher returns from financial institutions.

Kuroda said all decisions taken were in order to increase the effectiveness of monetary policy. Given that his term ends next year, there will be at least two more meetings under his leadership, which means that his successor will complete the path to policy normalization.

But there are those who point out that higher yields will mean unrealized losses on Japanese government bonds, including those held by the Bank of Japan. A sustained policy change could also hit Japanese stocks, as well as break the latest bond yield peg and trigger a sell-off in dollar in favor of yen. That will lead to Japanese investors divesting from overseas investments, which could result in a sell-off in emerging markets.

As mentioned earlier, the forex market reacted to this by moving quite strongly. In USD/JPY, there is a strong support around 130.20, and its breakdown will lead to another sell-off around 126.20 to 121.10.

In EUR/USD, demand remains quite weak, but there is a chance to return to December highs if the European Central Bank retains its hawkish monetary policy. However, traders need to keep the quote above 1.0660 because only by that will euro hit 1.0700 and 1.0740. In case of a decline below 1.0580, pressure will surge, which will push the quote to 1.0540 and 1.0490.

Relevance up to 05:00 2022-12-22 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Read more: https://www.instaforex.eu/forex_analysis/330368

Analysis Of The EUR/JPY Pair Movement

InstaForex Analysis

Instant Trading EU Ltd. is the CFD broker operating under the brand instaforex.eu, regulated by CySec with license number 266/15.

Besides CySEC, Instant Trading EU Ltd. is also supervised by the Czech National Bank (CNB), the Slovak National Bank (SNB), and the Polish Financial Supervision Authority (KNF). InstaForex.eu has branches in the Czech Republic, Slovakia, and Poland, where it provides support in local languages. InstaForex.eu is a member of the Investor Compensation Fund (I.C.F) which is an additional security for the client's funds.

InstaForex.eu offers access to around 2,500 instruments (CFDs in Stocks, ETFs, Indices, Commodities, Forex, Cryptocurrencies, US Synthetic Stocks) and the MT4 and MT5 platforms,trading accounts in EUR, USD, PLN, CZK, GBP.

More information at: www.instaforex.eu

 

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69,34 %. of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.