Bank of Japan’s Big Move

The Bank of Japan has put itself in a very interesting position as it has quietly become one of the most aggressive central banks in the world. The organization already had a reputation for being pioneers in some respects, but their latest action is truly one of the most shocking that they’ve ever pushed forward. The BOJ has just voted to approve negative interest rate loans, an extreme tactic by any measure, but one that they believe will help the country stay on goal of achieving its 2 percent inflation goal. Highlighting how extreme this move is, the measure was only approved with the margin of a single vote in the 5-4 decision by policy makers. What’s even more surprising about this is that the BOJ has publicly been against policies like this until very recently. It makes such a drastic move seem uncharacteristic, although current reports do indicate that talks about such a move have been going on for a few months.

Strategies like this have worked elsewhere. The European Central Bank has attempted negative rates in the past, and when coupled with quantitative easing, there have been good results for the economy. The ECB’s success in the past is part of the motivation that drove the BOJ to this decision. But the Japanese economy is very different than that of the EU, and that means different obstacles. For one, Japan does not have the same size or level of diversity as that of the entire EU. Their business focus is also much different, and to see the same results as the EU, Japan needs to be far more proactive in how they approach this. But, if domestic banks are willing to pay the BOJ for holding money and not slow their own services, this could be a very beneficial move over the long term. That remains to be seen still.

For short term traders, this could have a profound impact on what the yen does over the next couple weeks. The yen has struggled over recent months, and this measure is a big shot in the arm for it. However, the immediate impact is going to be negative. This is a measure that will help the Japanese stock market immediately, and the yen will gain stability over time, but the short term repercussion of this move is that the yen is going to lose value quickly. For binary options traders, this means a busy few days as they string together trade after trade in the put direction. Varying which currencies you use against the yen, and varying your expiration timeframes can add an extra layer of safety to these trades, too. But with the USD/JPY moving more than 2 percent in the first few hours of the U.S. trading day after the announcement was made in Japan, it seems like a pretty good certainty that the yen will be dropping consistently until some traction is gained. Even the euro, which has been hit hard lately, moved more than 1 percent against the yen. Other currencies may not have the same strength that the dollar has right now, so act accordingly as you formulate trades of this manner, regardless of whether you are using binary options or a Forex broker.

The big question that traders should be asking themselves is how long this momentum will last. The rapid movement downward will likely only last a day or two, especially because the news came on a Friday. Traders have the weekend to digest the news now. But, if the high volume against the yen only lasts a few days, Forex trading is going to lose efficacy. However, as long as the downward trend stays where it is, binary trading becomes far more attractive.