New Zealand – Japan 10 Year Bond Spread vs NZDJPY

BOJ’s upper limit for 10-year bonds is wreaking havoc on the Japanese Yen across the FX markets. The rising difference between New Zealand and Japan bond rates will be a key indicator for more upside for NZDJPY unless BOJ rethinks its strategy in this week’s meeting. 

BOJ set a %0.25 limit on 10-year bonds hoping to end the decades-long extra low inflation slump and kickstart high economic activity. Bank of Japan’s chair Kuroda said multiple times that they will buy unlimited amounts of bonds at the upper limit. While New Zealand rising rates, Japan is easing its monetary policy is causing a huge upside. Most of the recent increase of spread however has not shown itself on NZDJPY yet. 

NZDJPY 4H Chart

The price formed a flag formation started in March. If broken above, depending on the accepted start of the formation, NZDJPY might make a move to 100 over the medium term. On the downside, the 84-84.200 zone is the main support and on the upper side, the 87-87.350 zone is the main resistance at the moment.  

For NZDJPY bears, a change of tone from BOJ can be the key catalyst moving forward. At a possible downside breakout, Fibonacci levels, 82.722 – 81.293 – 79.863 can be followed as possible targets.