Evergrande fears fade aiding USDJPY ahead of BoJ

Fears of Chinese property developer Evergrande becoming a “Lehman type” moment for markets have eased, sparking hopes of a turnaround Tuesday session in risky assets.

Japan flag

As noted by Canadian Bank RBC, the share price of Evergrande has been under pressure since March, a result of the Chinese property developer colliding with a crackdown on property developers by authorities as part of a deleveraging drive. 

Already reflecting a high probability of default, the bond price bond of Evergrande has been trading at a significant discount in recent weeks. Should the situation fail to stabilise, RBC notes that authorities would likely step in to prevent contagion as they did in 2019 with Baoshang Bank. 

Additionally, Evergrande does not have the considerable counterparty derivatives risk that Lehman had when it went under. Instead, a good chunk of the money Evergrande owes is to suppliers, construction companies, and buyers of uncompleted apartments, who are likely to be made good by a government bailout. 

The return of some relative calm has allowed traders to take stock ahead of the first of this week’s developed markets central bank meetings, tomorrow’s Bank of Japan (BoJ) meeting.

Unfortunately, while the BoJ is the first cab off the rank, it will be one of the tamer events. The BoJ is expected to maintain the status quo across all monetary policy parameters, including asset purchase guidelines and forward guidance. 

Turning to the charts after completing a 5-wave rally at the 111.66 high, USDJPY continues to trace out a corrective pullback within a well-established trend channel. A break and daily close above the top of the trend channel, (currently at 110.10) and above recent highs 110.40/50, ideally after Thursday's FOMC meeting, would indicate the correction is complete, and the uptrend has resumed, targeting a retest and break of the 111.66 high. 

Aware that while USDJPY remains below resistance at 110.40/50, allow for a retest of the 108.72 low before the uptrend resumes. 

USDJPY Daily Chart

Source Tradingview. The figures stated areas of September 21st, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free

More from FX

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.