Will The ?Trend Be Your Friend? When You Trade The Yen?

Today’s Spotlight Market
The Japanese Yen is a bit of an enigma among the major global currencies, as it is at times viewed as a ?safe haven? asset during bouts of economic turmoil.? This belief is held despite the nation?s massive government debt, aging population, and little to no economic growth.? While most of Japan?s debt is held domestically, it?s questionable whether the nation?s declining population will be able to support the massive amounts of government borrowing in the coming years. Will the Bank of Japan be forced to keep the value of the Yen weak in order to support the nation?s manufacturing exporters in hopes of returning the nation?s balance of trade back to a surplus, where it was for the 40 years prior to 2011?

 

Fundamentals
While the attention span of many traders can be measured in minutes and ?long term? trades can last for weeks, it may behoove those who follow financial markets to look at the ?big picture? and study longer-term trends. A classic example is in the value of the U.S. Dollar vs. the Japanese Yen (USD/JPY). While the Japanese Yen appears weak vs. the U.S. Dollar at a current value near 108 Yen per Dollar, those who have studied the history of this currency cross know we could still have a way to go.

If we look back to the early 1970?s, it took closer to 360 Yen to equal 1 U.S. Dollar!? In fact, even as late as the late 1990?s the USD/JPY was trading closer to 145.? As we enter the 4th quarter of 2014, it is notable how different the monetary policies are between the Bank of Japan (BOJ) and the Federal Reserve (Fed). Three decades of deflation and aging demographics are forcing the BOJ to promote aggressive accommodative monetary policies.? At the same time, traders expect the Fed to start to pull back from its monetary stimulus, with markets pricing in a possible interest rate hike by mid-2015.?

While some Japanese lawmakers are concerned that the weakening Yen is hurting non-exporting companies, BOJ Governor Haruhiko Kuroda told members of the Japanese parliament that a weaker Yen would help the country?s exporters and benefit the Japanese economy overall. Given that the BOJ has already committed to asset purchases of nearly 70 trillion Yen per year and economic growth remains stagnant, it may take ?extraordinary? measures by the BOJ to help jump start the Japanese economy, which may include measures that may further weaken the value of the Yen — possibly to levels not seen in several decades. While it may still be too early to definitely prove, we could be in the process of seeing the end of the historic bull trend for the Japanese Yen.

 

Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for the Japanese Yen futures, we note that the trendline drawn from the 1985 lows has failed to hold the recent sell-off. While it appears that prices may have become oversold in the near-term, the longer-term trend now seems to favor Yen bears. The next major support level is not seen until the 0.8150 area, with resistance found near 0.9950.

MondayO13

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