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#1 13-09-2021 08:37:40

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USD/JPY: the pair and the Nikkei 225 react to the BoJ's message

USD/JPY: the pair and the Nikkei 225 react to the Bank of Japan's message

The Nikkei 225, the Japanese stock index, broke from a downward trend after the recent announcement of the Prime Minister's resignation. The Japanese yen weakened following the Bank of Japan's Kuroda's announcement of easing beyond the recent pandemic.

Investor attention has recently turned to Asia. Specifically, events in Japan have been particularly interesting of late, with the resignation of Prime Minister Suga triggering a bullish breakout in the Nikkei 225 Index.

This breakout is due to the fact that investors are expecting further fiscal stimulus from the new leadership to combat the effects of the virus situation. We are talking about packages worth trillions of yen - and this is how the Nikkei 225 index regained the 30,000-point level, even if only for a short period of time.

Bank of Japan Governor Announces Further Easing of Monetary Policy

The rise in the Nikkei 225 Index led to pronounced weakness in the Japanese yen. The two major currency pairs, USD/JPY and EUR/JPY, have both traded with a bullish tone lately, regaining the 110 and 130 levels respectively.

The decline in the Japanese yen was fueled by Bank of Japan Governor Haruhiko Kuroda, who stated in an interview that monetary easing would remain in place even after the end of the virus situation.

So, with the continued fiscal and monetary stimulus, stocks rose and the yen fell. What can go wrong?

Many things, but the most important aspect is what is happening with the global economy, especially the US economy. A risk-off move would lead to weakness in U.S. stocks, which would affect the Nikkei 225 in the short to medium term. Similarly, a risk-off move would cause the Japanese yen to rise.

In summary, while recent events are bullish for the stock market and bearish for the yen, the Japanese economy and monetary policies are not independent of events on the world stage. Once again, financial market correlations are key to understanding the future direction of the market.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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