The USD/JPY pair rose during the session on Thursday as traders came back from the Christmas break. We are now approaching the 105 level, the area that I had targeted initially as where the buyers would drive the market to. However, I believe that although we could get a little bit of selling pressure in this general vicinity, this pair should continue to grind much higher, given enough time.
Ultimately, the US dollar is starting to strengthen against most currencies, and that will be especially prevalent against the Japanese yen. The Bank of Japan continues to weaken is monetary policy while that bad on the other hand has to tighten there’s. This is a bit of a “perfect storm” as the interest-rate differential should continue to widen between the two currencies, thereby making this a “one-way trade”, and possibly for several years.
Jobs numbers
As long as we continue to get better than anticipated jobs numbers out of the United States, or at least decent ones, this market should continue to go higher. That will put pressure on the Federal Reserve to taper off of quantitative easing, while the Bank of Japan has stated in no uncertain terms that it was willing to expand its monetary policy if it had to. Because of this, dips will be buying opportunities, and I fully expect to see this pair go as high as 125, although of course that will take a significant amount of time.
It may seem like a crazy target at this point in time, but quite frankly that would just be a reversal of the financial crisis and its destruction in this market. We are obviously in a bull run right now, and I see no reason whatsoever to sell. I also see nothing really standing in the way of 110, beyond the psychological significance of the 105 level. That should cause a small hiccup on the way higher, but ultimately the fundamentals will continue to separate these two currencies, and pushes market much, much higher. This is one of the pairs that I am the most bullish of at the moment.
