By: Christopher Lewis
The USD/JPY pair has been one of the most important pairs for me lately, as I find it most interesting at the moment. The pair is undergoing a massive change as far as I can tell, and if history has any say, more specifically the trend change in 1995, this pair could be in for an interesting couple of months.
The last time we saw this kind of market in the pair, the market went back and forth several times over the course of a couple of months before the Bank of Japan finally won. (Killed off the Yen bulls.) There are many reasons why I think this pair will continue to go higher, not the least of which was a couple of statements last night that suggested the Bank of Japan was ready to print “unlimited Yen” in order to keep the exchange rate at a reasonable level.
There has recent been an expansion of the asset buyback program by the Bank of Japan, and this means that the central bank is buying more Japanese Government Bonds. This is akin to flat out printing more Yen out of thin air. As this continues, it will flood the market with those Yen, and make it a much less valuable currency in the long run. This is exactly how I am looking at this pair: for the long run.
For years, the Japanese Government has relied upon the populace to buy bonds in order to save for retirement. Much like in the United States, there is a large majority of the population getting ready to retire. In this scenario, there is a massive problem: There aren’t enough people to pick up the slack as the country currently runs a 200% debt-to-GDP ratio! This is why I think in the long run, the Yen is doomed, not because of the BoJ, but rather because of the demographics of the country.
Is 80 the bottom now?
I still see the 80 mark as absolutely vital for the bulls. The level looks as if it should be supportive, and as such it should continue to life the markets. There is the 50% Fibonacci level, the 200 day EMA, and of course the simple fact that it is a large round number working for it as support.
.png "USD/JPY Daily 4/19/12")
The action on Wednesday saw the pair break the 81 barrier. Although the market did this, I see that a bit of a shooting star may be forming. Because of this, I suspect we reenter the 81 – 80 level for more consolidation. However, I am willing to buy these dips at the moment as the breakout a few months ago truly was important for my money.