Good day ladies and gents. Well, it’s been a pleasant couple of months or even years for the Japanese yen bulls. As you can see, the USDJPY has sunk for 4 consecutive months in a row! It’s actually been on a downward slope since the last quarter of 2007! Nice. You see, the pair was running at a high of 124.16 back in 2007. Today, it touched a low of 83.59. That’s a gain of more than 4,000 pips in just three years for the yen over the greenback! The yen bulls would be celebrating with their sakes up high by now. Kombei! Still, things look even rosier for them as the USDJPY is poised for another drop. Just recently, the pair has fallen below it’s 2009 low. Given this, the next support that I see from the technical side of things is its previous low at 80.43 which was set way back in April 1995. If the yen continues to move up over the USD, then the pair would more likely revisit the mentioned all-time low.
The yen has been getting much favor from investors due to the recent weakness in the global equities markets. The market perceives the yen, aside from the greenback, as a “safe” currency due to its ultra low interest rate of 0.10%. Basically, Japan is lending out free money just to encourage lending and spending. Note also that Japan is the number three biggest country in the world. On top of that, like the US Fed, the Bank of Japan, has the capacity to just print more money to service their debt. So when there is risk aversion, the market tends to divert their funds to the safety of the yen and away from the higher yielding assets. And between the USD and the JPY, the latter is still perceived as the more safe given its lower interest rate.
Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa have been trying to verbally intervene in the markets by saying that they would start preventing the yen’s rapid appreciation. The market, however, called their bluff as evidenced by the ongoing rise of the currency. Remember that the BOJ has expanded again its loan program by 10 trillion yen on top of the 920 billion yen stimulus of the Japanese government to encourage consumption. Naturally, the yen should weaken given the increase in money supply but it did the opposite as it continued to strengthen. As of now, it appears the the overall market forces has the better say and power on the valuation of the yen than the BOJ itself. So if the global situation worsens ans and say the US market goes into a double dip, then the yen would more likely benefit some more.