USD/JPY getting small lift from fiscal cliff press reports

I don’t see anything new in this (and I think this whole fiscal cliff saga is a non-event) but nonetheless some people are paying attention it would seem. A report in the Washington Post suggesting that a deal is now much closer has given US equities a lift and seen Treasury yields rise. This is of course bullish for USD/JPY on many fronts, its risk positive, USD positive, and of course there is the traditional correlation between USD/JPY and US yields.

Fairly cheap risk reward trade for bulls to buy USD/JPY with a stop below the ‘gap’ level at 83.45.

  1. The fiscal cliff is, in my opinion, an exercise par excellence, in the manipulation of mass psychology. I mean, if the US goes over the cliff the US fiscal deficit will move from about $120 billion a month to $60 billion per month. If they get a deal, the deficit per moneth on average will be what? $80 billion a month? So either way there will be a tightening in fiscal policy but the common wisdom is the market will rally?

    Buy the rumour sell the fact i if there ever was one!

  2. Ya rightly said but I call it fiscal shit than fiscal cliff. but have to admit this has been a bulls here. bulls in control of eur/usd, usd/jpy, aud/usd, nzd/usd

  3. Sean, I read about BOJ considering 2% inflation target before January. Is it a big negative for JPY if it goes through? Or you think the current level already price this in?

  4. If BOJ were to announce that on Thursday then that would certainly surprise me and would be negative Yen for sure; once again same debate as yesterday, strength of move depends on level of positioning in market

  5. James, your logic is perfect, but the market runs on sentiment, not logic. With the fiscal cliff resolved the sentiment changes from fear to exuberance, at least in the short term. So markets will rally, at least in the near term until reality sets in sometime in the new year.

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