The USD/JPY pair broke higher during the course of the session on Monday, as we continue to extend the gains for the US dollar. With this being said, it looks as if we are going to try to make a fresh, new high, and that of course should send this market looking towards the 125 handle. That’s an area that has been resistive in the past, and as a result it should be a bit of a fight to get above there, but once we do the market should continue to go higher from there. After all, the large, round, psychological significance of a round number like this of course will attract quite a bit of attention.
The interest-rate differential will continue to favor the US dollar over the longer term, as the Federal Reserve is likely to be forced to raise interest rates relatively soon. On the other hand, you have the Bank of Japan which of course has no opportunity to raise interest rates anytime soon as the market simply cannot support itself in Japan. The Nikkei has been very susceptible to interest-rate scares, and at this point in time it appears that the Japanese are nowhere near being able to take that battle on.
The Bank of Japan will continue to try to decimate the value of the Japanese yen, and with that it makes sense that the US dollar of all currencies should take off to the upside. This pair tends to follow the overall attitude of stock markets around the world, and they do look like they are ready to go higher. Keep in mind that the Japanese yen is one of the few currencies out there that is considered to be more of a safety currency than the US dollar, so as long as we don’t have massively negative news, this pair should be free to go higher. Pullbacks should offer buying opportunities, as well as impulsive moves higher as this pair is essentially a “one-way trade” in our opinion now that we broke above the recent consolidation area.