Bye-bye USDJPY?

Is it time to say "bye, bye USD/JPY, hello 95"?

USD/JPY has broken its prior 107.22 low, which from an Elliot persepctive suggests that a move to the mid 90's is on the cards/
On a longer term basis, a monthly close at current levels would break the thirteen year uptrend line off of the 1995 lows at 79.75.
It's hard to escape the idea that the worm has indeed turned for the yen, and that Mrs. Watanabe has, at long last, found something better to do than day trade NZD/JPY. Let's get ready to rumble....
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CV
admin
January 15, 2008 at 2:56 PM ×

Indeed MM,

This will be most interesting to follow as I also commented in the post below. A couple of points/questions ...

- When will the MOF step in, if at all? Clearly, the perky Yen is not entirely bad since it makes all those expensive commodities cheaper. But on the other hand there is the whole deflation debacle and the point that Japan is a little bit different from all other economies (read: the world's oldest society).

- How much will the fundamental view drive the Yen? I.e. will a BOJ cut actually further the appreciation of the Yen and does the risk aversion argument still rule?

- I don't expect the more long-term outflow to stop but clearly as you say those housewives might get their wings clipped big time now. Incidentally, have anybody made an empirical stocks/flow analysis of all this as to how much those housewives actually drive the Yen ?

Ok, just some thoughts and by all means MM you don't have to respond to all the question marks :).

Claus

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Macro Man
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January 15, 2008 at 4:34 PM ×

Claus,

My non-prediction notwithstanding, a quick move to 100 would probably see the MOF dip its toe, if only to smooth the pace of the move.

I think that the MOF's laissez-faire attitude in 2006-07 precludes them from taking 2004 dtyle action, not lrast because other yen crosses are still so expensive. USD/JPY at 100 this time around is primarily a dollar story, not a yen story.

One could argue that with Japanese inflation ticking higher, a stronger yen prevents Fukui from doing soemthing stupid, eg raising rates as his term comes to an end.

I think a record current account surplus is a reasonable fundamental argument inf avour of a stronger yen; so, too, is broad based valuation, eg REER or NEER. And in a world where vol is higher and carry is a less attractive strategy, those factors should play a more important part in driving the yen's path than was the case in the middle years of the Noughties.

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OldVet
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January 15, 2008 at 11:04 PM ×

How much could MOF really do, with foot pinned to floor at 0.5% right now? Wave hands and dance in circle? Go bla-bla? With risky assets trending down, looks like a good bet. I'll probably take a third small bite of apple this week. If that fails, it's back to poetry and reality TV.

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Peter
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January 16, 2008 at 7:27 AM ×

a theme that is well represented by the Yen strength
is that Currenct Account surplus countries - after about 2 years of underperformance could come back with a vengeance against Current Account deficit countries..

currencies like HUF, TRY could be in for a beating this year

what do you lads think ?

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Macro Man
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January 16, 2008 at 8:03 AM ×

OV, well they could do what they did in 2004, which is to say "$250 billion mine". Howevever, I do think that is unlikely, given their silence when the yen was a whipping-boy.

Peter, I concur that there's a chance of that particular theme gaining traction. I wonder, however, if another yet related theme isn't more likely- the return of "value".

Either way, one might argue that an even more vulnerable curreny than those you've mentioned is the ZAR.

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Peter
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January 16, 2008 at 9:39 AM ×

MM
thanks for your comment

ZAR is tricky though with its correlation to EURUSD and Gold. eventhough its a prime receiver of equity related inflows, therefore very vulnerable indeed

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