Hello, still a newbie in Forex and at preschool in the education page. Tried my luck on AUD/JPY today and getting massive gains from it. Can a fellow legend explain a weakling to whats happening to JPY? Tried lookin for any news from Japan but couldnt find anything. THX
For some context the Bank of Japan has set a negative interest rate, -0.10%. In simplistic terms, this means that anyone holding JPY has to pay interest on the money they own. Compare this to the Australian central bank which has set a positive interest rate at 0.10%, which means people would be paid interest (at 0.10%) on the AUD they own.
To picture how forex works, the traditional business model in banking used to be “the 363 rule”. This said that if the bank borrows money at 3%, they can lend it out at 6% and the managers can get onto the golf course by 3pm.
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All the currencies are performing well against the JPY. The NFP release on FRI being the driver.
Despite the lower than expected numbers unemployment still registered at 4.8% (lowest since MAR 2020 @ 4.4%), giving the market confidence that the USD will still taper in NOV.
There’s also speculation that stronger than expected USD gains are being supported by increased yields on the USD T-bills. This appears to be the case for the bonds against all the risk on currencies, which could explain overall risk on sentiment.
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As tommor touched on. Why would you hold on to JPY when it costs you to do so?