BOJ Fudementals

Beginner Questions
#1

What a move! Hoping someone can break down what just happened with the BOJ meetings, I think this is a good example of Fundamental and Technical divergence. I personally believe that from a technical standpoint USD/JPY was still looking bullish(actually even took a small win on a long minutes prior). Yet, we saw the USD/JPY just plummet with BOJ’s decision against a stimulus expansion.

My questions,

1.WHY! why would BOJ do this when they were fighting deflation? Don’t they want to add to the money supply?

  1. Do people want a deflationary Currency? is that what causes this surge of Yen demand?

  2. I often hear Yen referred as “Safe Haven”. I don’t quite understand why It’s safe to keep your money in Yen if the economy is trending down?

Thanks in advance for breaking this down to a Newb!!!

#2

Shameless Bump

#3

Hi Chartzard…

Good thread…

I could write VOLUMES on this topic… but that is exhausting haha

It will suffice to say that all Yen pairs fell a great deal, in parallel to

the Japanese equity index (Nikkei 225), which itself has been starting a decline that

is in parallel with other equity indices around the world - I am currently short the

British (FTSE100) and American (S&P500) ones, and I intend to hold these moves

for a long time.

Given that a falling Nikkei 225 has an inevitable bearing on the Yen pairs, and that

it is already falling from historic highs, in order to reverse its course (and that of Yen

pairs) it would have taken something extraordinary both from BoJ and from world/Asian

markets to see renewed bullish sentiment to take these assets higher once again…

With the exception of the S&P500, other world indices (equities) have already started

their decline, although they have not fully engaged with a ‘risk off’ mood and are reticent

to do what they did back in August 2015 - Monday 24th, the ‘Black Monday’ of the Chinese

stock market crash…

This can be explained thus:

  1. holding ‘buy and hold’ assets at historic highs is very expensive and the yield/profit/returns are low;

  2. relying on central banks for an unending and constantly expanding ‘easy money’ (quantitative easing)

    is no longer an option, with a few banks either ‘tapering’/normalising their money-printing/asset-buying

    (like the Federal Reserve) or not increasing it (like the Bank of England or, recently, the Bank of Japan);

  3. without a QE support, markets do not have a central-bank backing for their risk, which means that

    investors on long-term positions are increasingly exposed to risk, and their clients demand a certain

    performance (e.g. in the case of hedge funds), so they are unable to quite let go completely but

    they are also unwilling to push more money into their position.

The combination of the above three means that either you get stagnant indices or indices that are

starting to falter and actually engaging with newly shaped down-trends from historic highs…

In turn, this means that a ‘risk-off’ sentiment will spread from these high-liquidity assets to

other asset classes, like currencies: with the Yen pairs all being risk-sensitive, you will see

that where more signals are coming that central banks are losing their influence to stem

the bleeding from a ‘flight to safety’ (out of overexposed assets like equities and into safe

assets like USD or precious metals) there you will have no incentive for investors to want

to hold their positions, and will use catalysts like central bankers’ statements to try to

time when they should get out…

Once capital starts haemorrhaging out of world equities and ‘carry’ trades (like the

long-term BUY positions on Yen pairs), more assets will join in as one, moving with

a similar sentiment, responding to the same concern… That is when ‘global risk aversion’

kicks in, as everyone who matters in capital markets tries to get out before it is too late,

that is, before they lose everything, as the landslide effect will gain momentum and

prices start dropping hard by hundreds or thousands of pips.

I hope this explains a little bit what is happening with the USD/JPY and the BoJ…

:slight_smile:

#4

In summary it is not what the news was but how the market reacts to that news, it matters very little if we think the news is bullish, if the market deams it bearish and sends prices sharply lower then that is how we must play it. USDJPY has been one of this years weakest pairs down 9% YTD and that is before today’s action, If you got caught long this pair it is all on you.

#5

Thank you guys for taking the time to explain this !

#6

I have made some of the loses in the EURJPY in this fall … how much i can say it is close to 255$ :frowning:

#7

That sucks man, keep at it. whenever I lose money I like to compare it to tuition cost at school, losing a few hundred dollars has gained me more knowledge than the 5 grand I paid per quarter to play beer pong.

#8

Now USD/JPY goes to 100 level. Shorting by 0.1 lot with Hotforex, Yen bears has nothing to arm with really.

#9

Trying to understand why any central bank makes the decisions they do in the modern age is essentially futile. The best thing I can recommend is to be cognizant of the decisions they make, and have a basic understanding of macro economics.

When it comes to trading, trying to say that A + B always = C is a death wish.
A + B can = C today, it can = F tomorrow, and then it can equal Z, D, A, and K two weeks from now.

The markets don’t move/react in a perfect cause and effect type of way. We as humans try to master our environments, and find an equation to simplify life, but in trading, things don’t work that way. The market gives you just enough consistency to keep you coming back for more, but in the long run, it’s impossible to understand why an instrument will do what it does with 100% certainty.

Trading is a game of numbers and edge. If you can “win” 40 out of 100 trades, and each “win” is equal to 2x each “loss”, then, you are in business. Over time, if you grind it out you will be profitable. The problem is, most people new to trading want the big win - the lottery ticket.

Do this:

  1. YouTube / Internet - dedicate @ minimum 3-5 hours / week of “study” time. Don’t burn yourself out, b/c it’s a lot to take in. Search the internet for educational resource on macro economics and how a country “operates”.

  2. Start a trading journal. Keep track of your ideas, trades, and anything related to the markets. Be sure to capture emotional information as well.

  3. Stop identifying yourself as a “newb”. This isn’t a game, and you’re not a “newb”. This is trying to compete w/ hundreds of billions of dollars that flow through computers each day for a slice of the pie. Professionals would never use the terminology “newb”. Talk to anyone who has been trading actively for over 15+ years and they’ll tell you that they learn something new about the markets all the time.

These markets are dynamic, and constantly changing (new types of instruments, new ways to trade, macro undulations) which requires every single person who submits any buy or sell order to be on their toes every single day to try and stay ahead of the competition. By labeling yourself as anything but a mere market participant, you’re subconsciously sabotaging your progress.

I’ve been a passive market participant for almost 10 years now, and active for 4. The one most dramatic conclusion that [B][U]I[/U][/B] came to, after all my blown accounts, smashed computer screens, victory bottles of scotch, thousands of hours on youtube and countless headaches from staring @ the charts is this:

Most retail traders fall into two categories:

  1. Those that are lazy, under-funded, under-educated, money addicts w/ a distinct need for instant gratification and self-sabotage; such a need is typically so strong, that regardless of how much money they give to the markets or “mentors” or guaranteed automated trading programmers, they’ll keep coming back time and time again w/ some crappy BS “strategy” which ultimately leads to destruction.

  2. Those promising they can teach you how to not be any of the above.

Where do I like to [B][U]think [/U][/B]I fall - somewhere in the middle of those two :wink:

Jake

#10

Hey thanks for the input Jake! I know these are probably tried and true words that you’ve passed on in the past, and I appreciate you taking the time to reinstate this knowledge again to me.

Through the videos and books that I have read, it is easy to summarize the good and poor quality of a professional trader. But, as you stated through your personal experience, these qualities are often tangled. The struggle for me each day is untangling my human instincts of greed, fear and hope from the disciplines that I’ve accrued through my studies.
I shall take your advice, and not self identity as a newb, or to put people (self included) in such absolute categories of all knowing and not knowing …I just need to repost this response 100 more times I think lol.

Qiao

#11

Well said! Spot on!

#12

The trick is to approach trading with an open mind. Stop forcing yourself to try and learn everything there is out there. Just keep an open mind and let the process unfold as it naturally would for you. We’re all different and no two traders will have the same experiences.

Glad to share anything I can, as I’ve been @ a similar fork in the road.

This is what it boils down to.
You take that first step on the journey to becoming a professional trader.
During that journey, you’re going to be faced w/ challenges - go right, or, go left.

Your current ability to trade profitably is a summation of all the left and right turns (challenges) you decided upon. In my unfortunate opinion, there exists a ratio of about 20:1 in terms of people you’ll meet along that road trying to give you a road map - 20 folks who are just as lost as you are, and 1 person who may actually be able to nudge you in the right direction.

However, I feel that interacting w/ both sets of those types of people is equally important. Why? Well, you need to touch a hot stove and get burnt to know not to touch a hot stove. Tell a little kid not to do something, and immediately they want to do it. But, 1 out of 20 of those kids will take your advice, and, ask their friend to touch the stove for him.

#13

Excellent points from Jake…

Good morning everyone, by the way, from a rainy Scottish Sunday :frowning:

Going back to the original question, I wanted to remind ourselves that

about two months ago the G20 reinforced its (2013) commitment to

put an end to ‘competitive currency devaluation’, that is central

government intervention to lower their currency…

Here is a summary:

G-20 Affirms No-Devaluation Pledge, to Consult on Currencies - Bloomberg

The problem is that nobody apart from the USA has had the courage/conditions to pull out of a

at-zero/near-zero/negative interest rates policy, so effectively only New Zealand has greater freedom to

go down (having the highest rate, at 2.25%) while everyone must, at some point, make that first step

of abandoning the at-bottom status quo and go ‘the Fed way’, that is, up…

#14
  1. Safe heaven because it has very low level of inflation and strong manufacturing economy I believe. Keeping capital in Yen is one of the best methods to save purchasing power of your money. This in turn increase interest to Yen as to an asset raising its value. So your investments in Yen will appreciate in time.
#15

The Demand for Safe Heaven for the Japanese YEN is now fading away as we see many of the new alternatives including [B]GOLD[/B], [B]SILVER[/B] and [B]PLATINUM[/B] coming up for Global Investors :smiley: