The USD/JPY pair initially fell during the session on Tuesday, ultimately finding the 102.50 level to be supportive enough to make this market bounce and form a nice-looking hammer. The hammer of course suggests that the buyers are starting to get back into this marketplace, and as a result we will more than likely head to the 103 level in the short term. With that, I believe that this market will continue to march higher, and ultimately break above the 103 level. The 103 level should open up a move to the 104 level, and then ultimately the 105 level given enough time. I believe that the marketplace should in fact continue to be positive overall for the US Dollar against the Japanese Yen, as the Bank of Japan continues to work against the value of the Yen, through various quantitative easing measures.
Keep in mind, that the bank of Japan is just now starting to ramp up some of its quantitative easing, while the reserve appears to be trying to get out of the quantitative easing game. With that, it’s very likely that the US dollar will continue to gain against the Yen for the longer term as well.
Long-term interest rate differential driving the market overall.
I believe that ultimately the interest rate differential will drive this market over the longer term, as is typical of the Forex markets. However, this is a little bit different in the sense that the 2 central banks are so diametrically opposed to what the other one is doing that it should become a “one-way trade” eventually. Right now though, the US interest rates in the bond markets continue to be on the low side, and as a result this keeps this pair artificially low in my opinion. I believe that ultimately that will change though, and that this pair will start to grind higher and I firmly believe that the Japanese yen will continue to weaken given enough time as the Bank of Japan has quite a bit of experience trying to weaken its own currency. I continue to buy this pair on dips.
