The Japanese yen has strengthened against most currencies around the world, as the Bank of Japan and the Federal Reserve have stepped into the markets to defend the yen.
CAD/JPY
The Japanese yen has strengthened against the Canadian dollar for the 3rd day in a row on Monday as we have plunged below the 112-yen level. This is an area that previously had been rather significant with its support, and it now looks like a market that is going to continue to see a lot of questions asked of this 112-yen level.
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This area had been very important back in January and February, but we sliced straight through it on Monday after initially trying to recover. That being said, this is all of course based on the Bank of Japan and the Federal Reserve doing what they can to support the Japanese yen, which of course supports global borrowing. A systemic major problem could be a consequence of the Japanese yen weakening too quickly, so that does make a certain amount of sense that several central banks would be concerned.
Central Bank Intervention and Rate Differentials
That being said, this is a market that continues to see a lot of noise, and I do think that the interest rate differential facing the Japanese yen will eventually be a problem. But the one thing that the central banks needed was for this to slow down. It's not so much about reversing the trend most of the time; it's about the speed of the move.
So, with that being said, traders continue to look at this as a market where maybe you can buy dips, but you also have to be aware of the possibility of a lot of choppy and dangerous trading. That being said, the one thing that you can do is keep your position size reasonable and make sure that you are cognizant of just how dangerous fighting central banks can be at times.
This is a market that has been bloodied pretty quickly, but ultimately, it does look like the buyers are willing to step in and at least try to defend it. I remain bullish longer term, but I recognize this is more or less an investment and not so much a quick short-term trade.
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