How Low Can It Go?

The Japanese Yen has been in a free-fall. As I noted a few weeks ago, the Yen was in midst of a major trend change. Since then, the Yen ($USDJPY) is up another 7.5% (the other Yen pairs, $EURJPY & $GBPJPY are also up big over the past few months). Even though the Bank of Japan has not yet initiated any new action (IE- QE, NGDP Targeting, an “Evans” Rules, etc), the “talking of the Yen” down has worked, mainly because the recently elected Prime Minister of Japan (Shinzo Abe, or as I like to call him, Honest Abe) has favored monetary easing & threatened the independence of BoJ.

Just from a $MACRO perspective, I don’t think this deprecation of the Yen is going to last unless the BoJ and/or the Japanese Government seriously act on the proposed measures (and as Noah Smith argues here and here, this isn’t likely) without any drag from either side (monetary or fiscal). Bond markets seem to favor my view, as yields for JGB have not really moved up much, if at all since the low of this current rally in the $USDJPY (low was in September 2012).

JGB Yield










However, simple technical analysis says not to short the Yen despite my fundamental view. There still is no reversal sign/pattern, relative weakness, or a blow-off top. In fact, the $USDJPY is in midst of its best rally (Counting from low of current trend to high) for the past 10 years (percentage wise), being up a little more than 20%. That’s a bull market, and one with force, and something I do not want to be short (yet). I’m still on the sidelines waiting for an opportunity, if it arises.

Here is an updated chart of the $USDJPY (10 year, monthly chart) with some new possible resistance areas to watch out for.

USDJPY Monthly Chart



The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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