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Yen/Yang?
Written by: Sean HymanArticle Overview: In this article, Mike Conlon expresses his opinion about the trend of the pair USD/JPY. There could be a major reversal technically due to the huge hammer price action. Fundamentally, Japan reported that consumer price fell a record 2.4% as deflation is putting further pressure on a already fragile Japanese economy. Also, Bank of Japan Officials and others are trying to talk down the Yen, whose strength could harm Japan’s export. Meanwhile, there is a vocal saying that the US will not going to let the US dollar completely tank.
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Yen/Yang?
I’ve written recently about the strength of the Japanese yen and some of
the reasons behind the move that brought JPY to an eight month high vs. the US
dollar (USD).Last week, Japan’s Finance Minister Fuji had voiced
his opposition to government intervention to slow the strength of the Yen, but
this week he may be changing his tune.And all of this comes on the heels
of the G-20 meeting which wrapped up last week, where who knows what was
actually discussed.
Today, Japan reported that consumer
prices fell a record 2.4% as deflation is putting further pressure on an
already fragile Japanese economy.Combined with the strengthening
Yen, this could be a recipe for disaster which could derail economic
recovery.It’s no wonder that ex- Bank of Japan Officials and others are
back-pedaling from those statements and trying to talk down the Yen, whose strength
could harm Japan’s exports.
So what’s going on with the Yen and
what does that mean for other currencies and markets going forward?Well
if the current correlations hold up, there could be some interesting times
ahead in both the stock and currency markets.
Well for starters, the trend on
USD/JPY has clearly been down (down means up for the Yen for our currency
market neophytes) going back as far as April 2009.However, we’re seeing a
huge doji (hammer) price action which could signify a major reversal.Also
to note is that body of that hammer closed just below the lower Bollinger band,
which could also been seen as a bullish reversal signal.
This falls right in line with the
new comments that are coming out of Japan that in fact they may not be as adverse
to currency intervention as Bank Minister Fuji had just claimed.If
deflationary pressures increase, then the BOJ may be forced to intervene in
order to spur exports to foster growth and increase employment.
This could reverse the notion that
the US dollar has now become the vehicle of choice for the carry trade and
could send USD higher as the appetite for dollars picks up.And should the
dollar strengthen, than it’s possible that the stock market will decline, as
will commodities.
The stock market has had a nice run
from its March lows, so a bit of a pull-back may be welcomed.Add to the
mix the fact that there is increased chatter about replacing the US dollar as
the world’s reserve currency and this time Bernanke & Co. may have to take
action.
Just today, Dallas Federal Reserve
President Richard Fisher said that the Fed policy reversal could be swift,
although he is not an FOMC voting member.This is yet another vocal
attempt to re-assure the other nations to stay the course and that the US is
not going to let the dollar completely tank.
So the million dollar question is at
what point does the Fed reverse policy? Well, it may not be as far
away as some market participants think.
Some nations appear to be exiting
the recession with New Zealand and Australia leading the way.The global
recovery is dependent upon the United States exiting recession, so any sign
that we have stabilized could inspire confidence to act.
So while other Finance Ministers are
also concerned with the big picture, they also have to look out for their own
interests. This could force the Fed to act before they are truly
ready, which could send the Japanese yen much lower.
With the all of the uncertainty out
there, the one thing we can be sure of is a rise in market volatility, and look
for USD/JPY to rise.Let’s just hope this doesn’t take all of the other
markets down with it!
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