Here’s Why A Stronger Yen Is Likely
Stronger Yen
Appears Likely Despite BoJ
While backing away from
the charts last night and doing some macro research, I came across some
interesting data that sheds new light on the level of USD/JPY. You will recall
that in recent days I have expressed concern with the BoJ coming in to intervene
to prevent “too rapid” of an appreciation in the Yen. Given their history, this
is/was not a difficult conclusion to draw.
March of this year marked
the end of BoJ interventions, although many “policy” statements have been
uttered since then, there has been no intervention to the best of my knowledge.Â
Japanese exporters, recognizing this, realized that they were going to lose
their “free” hedge against a strengthening yen, and as a result sold the dollar
forward. It now appears that most Japanese exporters are hedged on an appreciating
yen down to around 105.90-106. Bear in mind too, the BoJ is more concerned
about the “speed” of yen appreciation rather than the actual level. A gradual
appreciation is within their tolerance levels. We are now of the belief that
short USD/JPY positions are viable with relatively tight stop losses. We will
advise on specific entry points going forward.
Regardless of the above
conclusions, the dollar appears to be ready to make lower lows in the weeks to
come. The nagging twin deficits cannot be addressed unless the consumer
retrenches via reduced incomes or demand OR the dollar is devalued. The current
situation calls for a further 20% depreciation in order to offset the current
deficits. Many Fed officials have made it clear in recent weeks that this is
the most likely path. The question is, will it be gradual or sharp. We are of
the belief that we have simply switched the trading range to a new set of lower
levels.Â
Markets seem quiet this
morning after a big week of price action. Most players will likely not want to
establish new positions going into the weekend. In fact some lightening of
positions might just offer us some solid long entries as we did not feel the
need to jump in on the break earlier this week fearing that it was yet another
false break. It now appears clear that the range has been broken.
Our current interests lie in
being short AUD/CAD (from .9130) and are seeking a short in EUR/AUD and a long
in AUD/USD.
As always, feel free to send me
your comments and questions.