The following article and series of charts / graphs should scare the living day lights out of you, if you don’t already have a general idea how artifically low interest rates and the “U.S debt situation” fit together.
Shocking when you consider that net interest costs will double in five years, and triple in eight.
So…….The Fed is gonna hold rates at zero forever then?
Impossible.
We’ve discussed how important this pair is with respect to it’s “drive in equity markets” ( with JPY being sold/borrowed then converted to USD in order to purchase equities ) and it’s interesting to note that:
Regardless of whatever fluctuations we’ve now seen around Yellen’s “slightly more hawkish” comments….USD/JPY refuses to break higher thru the downward sloping trend line that has contained it for so long.
What would appear as “USD strength across the board” really only manifests as a couple pips rise in USD/JPY.
This is because strength in JPY is even GREATER. With both currencies taking inflows only JPY taking MORE creating a net result of USD/JPY falling “lower”.
This may appear counter intuitive as one might imagine “well USD is going higher….this pair should also be going higher right?” WRONG.
Understanding the fundamentals behind this pairs movement can tell you a lot about market’s appetite for risk as “USD will be converted BACK to YEN as U.S equities are sold.
A stronger Yen correlates to “weaker U.S Equities” near 95%.
Something to add to your toolbox if it’s not already in there.
I’m adding short USD/JPY here at 101.63