US President Donald J Trump certainly has his fair share of critics. Even I myself am sometimes one of them. There is one thing though that he has not misled us about and that is economic growth.
The new President has promised us a steady growth rate of 3% and the numbers out on Friday have demonstrated that despite hell and high water, floods and fires, and a multitude of other obstacles, the economy has fulfilled that promise on his behalf.
The significance of this report along with the jaw dropping revenue announcements from the US’s biggest tech firms has sent the stock markets to the moon.
Market Overview
The world’s largest financial institution may soon be changing ownership.
Even though central banks are supposedly separate from the government and unconnected to politics, the very nature of their business binds them to each other.
One example is the way in which Fed Bosses are chosen. When Janet Yellen’s term ends as the Governor of the US Federal Reserve, there will not be any national election to find a replacement. Rather, the President of the United States will be the one to nominate her successor. The nominated candidate will need to be vetted by Congress before being sworn in, but at that point his or her appointment is almost certain.
Trump’s administration has been mulling the decision over for several months now and according to reports are very likely to announce shortly that Jerome Powell will take over.
Powell has been on the Fed’s Governing Board since 2012 and is expected to be the best person to continue Yellen’s work on “normalizing” monetary policy and more importantly he is expected to be the best person for the roaring stock markets.
As earnings season slows down to a trickle, market participants are more likely to be focusing again on the Fed and their international counterparts and look to them for direction.
Japan
If the Fed in the US is expected to continue their path to normal monetary policy, their friends in Japan are doing just the opposite.
After PM Shinzo Abe’s sweeping victory in the national elections the Bank of Japan now has a full mandate to continue on their path to printing money and forcibly devaluing the Japanese Yen.
Until now they’ve been focused on creating money in order to buy Japanese ETFs but they may be running out of assets to buy.
As of February, the BoJ owned about two thirds of the ETFs in Japan…
According to some sources, in the past few months, their holdings have grown to 75% of the entire market.
Of course, this is unsustainable. You can’t have a free and fair market in which the central bank is holding most of the assets.
Also, the Bank of Japan is still experimenting with negative interest rates. Currently, anyone holding funds at the BoJ needs to pay 0.1% a year in negative interest. Even though many other central banks around the world are trying to raise these rates, Japan is not expected to do so for quite some time.
The market is currently giving the possibility of a BoJ rate hike in one year from tomorrow at just 33%.
The good news is that this white line is rising and that at least the markets are starting to belive that it eventually will happen.
Tomorrow morning, BoJ Governor Haruhiko Kuroda will give the interest rate decision, followed by a press conference.
In my view, this meeting has a very large chance of delivering a surprise to the markets. They do need to switch their strategy quite soon before they’ve bought up all the assets in the country and now that Abe has the power to do as he pleases, the timing is right to double down or back off their plan to send the Yen to the floor.
Japanese Traders
In Japan, day trading is a way of life. Candlestick charts were invented there as was the Ichimoku Cloud and several other technical analysis indicators.
Lately, they’ve moved on to a new asset that’s a bit more volatile than the Yen. Now they’re trading Bitcoins.
The Bank of Japan, possibly in an effort to weaken the Yen, has legalized Bitcoin completely in April and since then many major stores, websites, and supermarkets have started accepting payments in the digital currency.
In September, the country’s BTC monthly volume reached a record of 6.5 Million coins, which is roughly 70% of the entire market.
Over the weekend, the price of Bitcoin reached a new all-time high of $6,281 per coin so the number one chart today that most traders will be looking at is this one.
It will be interesting to see if the BoJ does indeed end up with a surprise tomorrow how fast traders will switch their screens to the USDJPY.
Of course, the nature of a surprise is that nobody is expecting it. So most likely they’ll simply continue on their path to buying out the market, cutting their nose off to spite their own currency. But it always pays to be prepared.
Wishing you an amazing week ahead.
