The historic USD/JPY picture from its 360.00 USD/JPY introduction after WW 2 is the story of a massive multi decade downtrend that saw its bottom at USD/JPY 76.00 in August and September 2011. USD/JPY 360 reversed as JPY/USD saw 0.0027 lows to today’s current price at 0.0080. The correction higher from USD/JPY 76.00 is now experiencing prices last seen in May 2002 when USD/JPY was 126.35. Prices are quoted in terms of monthly average closs. To offer context to the larger scenario, from USD/JPY 360.00 highs to 76.00 lows, the historic halfway point is located at roughly USD/JPY 218.00 and JPY/USD 0.0045. Historically from current USD/JPY 124’s is not a terrible location. What drove USD/JPY prices higher was the ride first on the short end of the USD yield curve at the 2 year yield then it gained speed when the Volatile 5 year yield was its sole driver. From a price perspective, when USD/JPY broke its 89.00 and 99.00 price points then 104.00’s and 105.00’s, the uptrend found supports and contined to current 124.00’s.
USD/JPY is a USD story as the DXY topped at 125’s in 2001 and embarked on a massive downtrend that saw 78.00 lows. to now current 97.34 in a historic retrace. The current story remains the same for USD as well as USD/JPY. Yellen raises Fed Funds, USD/JPY heads far higher and a renege or hesitation or delay will see USD drop like a rock because its way overbought. But current USD Yields are low, oversold and has poential to rise far higher to take USD/JPY far higher. The front end of the USD yield curve for example prices USD/JPY to easily head to 127.46 and 128.45.
From the JPY/USD side, BOJ QE is driving JPY lower. QE is not new in the larger historic monetary policy schemes of the BOJ and Japanese Governments since the early 1900’s. Japanese industry must export to earn profits but must import the goods to complete the manufacture of its products. Japan is not an oil producing nation so must import oil. Because Japan uses a special type of Sour Oil to drive its cars and economy, it shared a historic relationship with Iran as the world’s producer of Sour Oil. Sanctions hit Iran so Japan was forced to look to Saudi Arabia, United Arab Emirates, Qatar and Kuwait for its oil (EIA). When Fukisima hit, Japan was forced to increase its supply of oil imports. Due to Japan’s need to export, import oil and products for manufacture, the BOJ and Japanese Governments historically shared close close ties to Japanese industries that are more in line with outright partnerships. The famous and most powerful Ministry of International Trade and Industries was at the heart of directing, planning and financing all Japanese industry activities in trade. Today the agency is titled Ministry of Economy, Trade and Industry. The historic link of Japanese companies, Governments and BOJ policies has seen every economic policy derived since the 1900’s fall as a massive disaster. Every decade brings a new failed economic scheme. The last Japanese QE attempt in the 1980’s and 1990’s failed due to target of GDP but again it was the Tax increase just as today that failed the Japanese economy. The Japanese failed to realize then that money supplies go wildly out of contriol under QE so GDP was all over the board and never hit targets. Previous was Japanese Keiretsu systems and pre WW 2 was Zaibatsu. The term Zaibatsu means monopoly and were early Japanese holding companies operating in Japan with a history that dates to the 1600’s and operated long after the 1866 Meiji Restoration. When Japan’s new constituion was rewritten after WW 2, Keiretsu formed as the new Japanese model. Japanese companies now “linked” as the true term meaning for Keiretsu.
USD/JPY. Two vital points below holding USD/JPY. 122.50 and 121.92. As long as both hold, longs is the way. USD/JPY is overbought only in the middle section of the curve but short and long is a trend in its infancy. USD/JPY has potential to go far higher as top of the overbought peak is not seen until 127.77, 133.14 and 137.18.
From current 123.75, next above lies 123.90, 124.03, 124.18, 124.65, 124.70, 125.84 and 127.40. Below 123.46, 122.50 and 122.40, 122.31, 122.00, 121.92, 121.70, 120.91 and 120.60. Again two vital points below 122.50 and 121.92 are key to see USD/JPY higher. A break lower for both is just a larger correction. It doesn’t stop the uptrend but delays it. To offer context to below prices, Extreme buy points are found at 123.19, 122.88, 120.52 and 121.07. So points at 122.50 and 121.92 won’t break easily. Further, extreme sell points above are found at 124.78, 124.85, 125.99, 125.76. Its again just as seen in all currency pairs under our review, its a tight tight market. Long USD/JPY is the way.
Brian Twomey, Inside the Currency Market, btwomey.com