3.15 Financial Policy WEEK【Free Article】
※This article does not指示 or recommend trading timing.
Please make your own investment decisions.
The Financial Policy WEEK starts today.
Last week, the ECB expanded its bond purchases to curb rising yields, a fact that is fresh in memory, and the market’s focus is on rising rates.
With FOMC on March 16–17 and the BOJ Policy Board meeting on March 18–19 approaching, it is expected that markets will increasingly price in these events.
Also, with the U.S. daylight saving time starting, be mindful that there will be changes in indicator releases and market entry times.
////FOMC/////
On March 4, Powell’s remarks offered two hints.
Noting that the policy stance is appropriate and commenting on the rise in U.S. interest rates as something to watch, he stated careful attention to that aspect.
The Fed has argued since the start that the current rate hikes are the right direction because the economy is picking up.
The market, however, remains doubtful about further tightening, fearing negative yields driven by inflation concerns.
Secretary Yellen recently said that inflation concerns have not risen, despite higher consumer price data, maintaining her stance since her time as chair.
Powell’s stance is unlikely to shift in response to Yellen’s remarks.
By raising rates as a fiscal policy, moving the dollar higher while inflation gradually increases, money flows into the United States grow, increasing the value of dollar holdings, making the dollar more resistant to inflation compared to other countries.
There are two sides to boosting the economy: one is the dollar-weakening strategy Trump pursued to gain foreign currency and stimulate the economy through trade balance, and the other is to attract investment and strengthen the dollar to revive America, but given current conditions, a policy shift toward dollar strength seems plausible.
From Japan’s perspective, a weaker currency could boost exports and improve the economy, but Japan’s land area is small and domestic demand alone cannot sustain growth, so this policy is not feasible.
Viewed this way, the stance of the United States and Japan appears aligned, and a gradual rise in the dollar/yen is expected to continue.
Resource-rich countries like Australia and Canada run trade deficits but sustain themselves through investment inflows; a stronger currency helps their economies, so they prefer a higher currency value.
All countries ideally want a gradual move; rapid changes tend to bring negative factors and require short-term restraint.
Returning to the topic, the FOMC is unlikely to implement a twist operation (selling short-term and buying long-term to expand the portfolio without enlarging it, aiming for short-term effects and market calm) unless the chair’s policy stance changes, which appears unlikely.
If there is no change to the policy gist, the dot plot becomes the main thing to watch.
Another concern is when the tightening will occur.
They have indicated that ultra-low rates may persist through 2023, but exit strategies always surface.
If the dot plot shifts negatively, it could weigh on stocks.
Conversely, if there are no changes, bond-selling pressure may accelerate.
If rates rise further, the ongoing shift from growth to value could continue, with tech stocks remaining soft while stocks that were suppressed during the COVID-19 period rise.
The Dow-Nasdaq dynamics that shifted sharply in 2020 may continue, with Dow buying and Nasdaq selling in focus.
As the author, I forecast no change in current conditions and no dot plot changes.
There remains room for upside, as the market’s inflation worries and shifts toward stock selling and bond buying have not yet reached a tipping point.
////BOJ Policy Rate Decision////
The results of continuing policy reviews from the start of the year will be disclosed at this meeting.
Although Kuroda’s policies have often been overlooked, this time they seem likely to directly affect the Nikkei’s movements, so they deserve attention.
First, a recap of BOJ actions to date.
Recently, the BOJ indicated that it would not buy ETF holdings when stock prices rise, to allow more flexibility in buying, and the customary TOPIX day-before gains exceeding 0.5 did not trigger purchases even when the index topped 30,000 yen.
Currently, the BOJ’s presence has grown considerably, and it appears there is a shift away from the policy that supported the early government market.
It would be improbable to expect a complete reversal of a stance developed over about ten years, so a continuation of the recent trend is likely.
The situation is to keep stock prices high while avoiding excessive balance-sheet expansion of the BOJ’s ETF holdings, therefore moving away from a government-supported market is a likely goal.
The key issue is how convincingly the review results are explained.
Markets currently expect the removal of the ETF purchase target of 6 trillion yen per year, which is sensible since it was not fully utilized the previous year.
If this country were the United States, the move would progress smoothly, but here in Japan, considering economic conditions and investment education, the situation is different.
If the BOJ’s stance is viewed as passive, stock support could disappear, creating downside risk for the Nikkei.
In any event, the announcement is unlikely to be a driver of upside; expect status quo or a decline, and just before the decision meeting there could be some profit-taking activity.
On the other hand, a potential surprise could be a deeper negative rate policy, which may emerge if the burden on regional banks can be shifted elsewhere.
If a roadmap is outlined, it could still contribute to yen weakness.
Indications of further easing would likely support a higher stock market.
And as expectations for easing rise, it would likely bolster stock prices.
USD/JPY outlook
Trading stance: Buy dips
On the daily chart, the downtrend line is approaching, making upside harder to come by.
Currently facing resistance around 109.2, but event-driven momentum could push through at any time.
However, this week is likely to see conflicting moves as markets price in events and reduce positions, leading to heightened volatility in both directions.
A stance to take would be to view it as a dollar long if it falls, but refrain from action around the high range until events are navigated.
In the near term, expect a boxed range; if it clearly breaks 109.25, aim for around 110 yen.
Support levels at 108.3, 108.1 (which acted as resistance last year), and 107.8 as recent support suggest potential long entries in this area.
But given the range, if it does not hold at 108.3, there is a high likelihood of a move toward the 107 yen region, and 108.1 requires careful monitoring.
The center of the range at 108.8 should rebound, but being the center of the range, it is not a long-holding position.
Nevertheless, with a short-term uptrend line forming, if you align your stance with the trend line, the risk-reward ratio looks favorable.
Euro to dollar
Trading stance: Sell on rallies
On the daily chart, the euro-dollar, which had followed a move similar to 2017’s rise, now sees euro buying cooling, with the widening interest rate differential and euro weakness driven bear trend.
From a 1- to 2-year perspective, euro-dollar is expected to trend downward gradually, and perhaps near its current ceiling.
From a monetary policy standpoint, the ECB’s expansion of bond purchases aligns with the Fed not taking measures against higher rates.
Looking at the short-term chart, the decline channel’s angle appears to have changed and the pair currently moves within the above range.
Technically, heavy lines are around 1.205, 1.202, and 1.2; within 1.2 to 1.205, consider shorting positions.
However, the channel center line is approaching on the technical chart, and if it fails to reach 1.2, a downside break is possible.
The intraday channel shows an uptrend channel forming, with a rebound at the center line and Friday’s close.
With these two points in mind, the stance is
Sell above 1.2 and sell below 1.191, i.e., maintain a selling stance on both extremes.
