The USD/JPY pair rose significantly during the session on Tuesday, as the bottom of the consolidation yet again offered support. We are longer-term bulls when it comes to this pair, and believe that the next significant barrier to get past as the 103 level. If we can get above the 103 level, we see no reason why this market will march to the 105 level. In fact, we are short of the Japanese yen against many other currencies, but this particular pair has been a little bit flat lately.
Speaking of flat, this area has been much consolidated, and as a result we feel that the market will be trying to form a little bit of a base in this area. Because of this, the market should ultimately matched the height of the rectangle, which gives us the target of 105 again. So having said that, we are fairly confident that eventually this pair will make that move.
However, we believe that interest-rate differentials will continue to move in favor of the Americans, and thereby pushing money from Japan to the United States. We believe that this pair will eventually find the 110 level, and as a result we are buyers every time this market pulls back, and shows some form of support. That supportive action should bring in more buyers as well, as we believe the so-called “smart money” is entering the market from time to time. Longer-term, the Bank of Japan will get what it wants, a weaker Japanese yen.
Quite frankly, we have seen this movie before. Back in the 90s, the Japanese yen got far too strong, and the Bank of Japan spent incredible amounts of money to weaken the value of the yen. We believe that will continue to be the case, and with the Federal Reserve looking at tapering off of quantitative easing going forward, there’s no real reason why this pair won’t go higher. Anytime a headline knocks this pair back down, your first thought should be of the possibility of taking another position of perceived “value.”