Rates as of 0500 GMT

Market Recap

Many retail traders ignore fundamental analysis and focus entirely on technicals. Todays market shows the mistake of that. Look at USDJPY! It rose to a 20year high today. Its quoted at 132.93 as I write. This is the result of the monetary policy divergence that Ive been harping on about for months.

The trigger was a speech Monday by Bank of Japan Gov. Kuroda, who doubled down on the BoJs ultraloose monetary policy even while almost every other central bank in the world is tightening policy.

Gov. Kuroda explained that There are mainly three reasons why the Bank considers it necessary to persistently continue with aggressive monetary easing.  These are

Japans economy is still on its way to recovery from the downturn caused by COVID19;
since Japan is a commodity importer, the economy has been under downward pressure from an outflow of income brought about by recent rises in international commodity prices; and
the price stability target of 2 percent needs to be achieved in a sustainable and stable manner

Achieving the price stability target of 2 percent does not mean CPI inflation reaching 2 percent temporarily due to such factors as a rise in energy prices, but rather a situation where the inflation rate is 2 percent on average over the business cycle. To realize this situation, it is necessary that the Bank continue with the current aggressive monetary easing and thereby encourage the formation of a virtuous cycle in which…