Some great thoughts from one of our readers
Reader 5magics has put together some fantastic analysis on the yen. One of the things we want to do at ForexFlow is give a better platform for views from other traders, so I’ve fished his comment out from Disqus and putting in a better window for you all.
Over to 5M;
Hey Ryan, K-man and other guys, I’m back after some days off.
That short could work as we could range into the NFP but JPY lookin very weak, see the break of 136 and now confirmed on EURJPY and stocks going gung-oh. I’m selling JPY.
Since we’re talking of JPY and I said I would have posted something on my year end view of JPY, here we go, for those interested.
Fundamentals:
– It seems that it will take time before the BoJ tapering story kicks in, Kuroda being very careful to not anticipate anything. And I even have some doubts on the tapering happening. Comparing to the ECB, we started seeing some rumors on changing guidance and tapering the QE some moneths before the EUR trend started, but there was a clear dissent on the ECB towards a more hawkish stance. Where’s the dissent in the BoJ board? It seems a feast of doves at the moment.
– Global growth should continue, with commodities picking up steam lately. We could be closing into cycle end, but there is still room to go for what concerns economic global growth.
– Fed plans to hike. Hey Jerome, are you there? Need to wait and hear what the J has in mind about the hiking path. Gradual hiking looks the way they’ll go.
– A wild card is US and EURO yields. If they break the next important resistance (say 2.6% US 10y and 0.5% GER 10y) that will surely weight on JPY.
All in all, such things should weigh on the Yen.
Technically, most important thing to me, my feel is that there is still price pressure to weaken the JPY. It seems that some medium/long term patterns have enough “magnetic” force to be completed. I post some weekly/monthly charts as replies of this post cause I can’t put them into the right place in the text.
In conclusion, I think it will take time to start seeing some meaningful JPY strength and JPY could remain weak/ranging throughout most 2018 (of course barring whatever shock on the geopolitical side etc.). What I will look for:
1. A meaningful change in communication from Kuroda. Or whoever the next BoJ boss will be.
2. Signs that US/EUR/JAP inflation will simply not pick up and remain well below 2%. If oil tops here with this overshoot of the 38.2% ret of the big move down from 100s it could put further weight on this point in H2 2018.
3. US yield curve inversion and signs of slowing US growth. And consequent signs of a top in the never ending US stocks bull market that realizes central banks will tighten even if inflation is not there. I think some aspects of the US tax reform will make the next recession heavier.
Perhaps those points will come together and show a synergic behaviour. If and when they appear clearly and the market starts buying into them, I will look for a clear break of USDJPY 100.
EURJPY
This pair is key, if one wants big/medium JPY moves EURJPY needs to lead. Looks extremely bullish and 145 could come.
GBPJPY
Dragged around too much by all Brexit things to me to show clear signals but if 153.5 goes we could be on track to 160 or so.
USDJPY
Stuck big time in the 2017 range and not providing clear info at the moment imho. The black downward channel looks key along with the pesky cloud.
JPYCOM currencies are the most worrying charts for JPY bulls, it seems to me that some major resistance are at risk, see e.g. AUDJPY (90+ coming?) and CADJPY (95 coming?).
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Disclaimer: 5m was still a bit fuzzy from a couple of days of too much wine. Readers, take it at your own risk π
You don’t get disclaimers like that from Goldman Sachs π
A great write up 5m thanks a lot! Wine brings inspiration π
I stepped out of long JPY over the past 24 hrs btw.
I was looking at the crosses, EURJPY in particular. As I said before my feeling is JPY could start to appreciate starting Spring ,once the new ( same old)BOJ boss is in place and the wage talks will have taken place. Until then we could indeed see the EURJPY take another step up now we’ve decisively broken above the 134.50. It actually wouldn’t take such a big move in USDJPY if EURO continues to outperform as we’re seeing it now. Put EURUSD at 1.23 , it’d only take for USDJPY to hit 114 and we’re already trading 140… So till Spring I think we may indeed see the JPY continue to underperform as there are no hawks around the BOJ as you rightfully mentioned. I’ll be a dip buyer around 134.50/75 for now.The correlation weaker JPY, higher valuations remains in place.
From April , since Companies hiking wages by 3% or more will get tax reliefs ( they may need to repatriate some cash then to sponsor the wage hikes before any tax reclaims) and providing the Japanese numbers continue to come in strong, I reckon we may get some hints that the BOJ is thinking about how to unwind QE and release the grip a bit on YCC to please the Japanese megabanks . They are already buying less JGB’s than the 80 trln JPY per year target, in 2017 they bought 47 trln JPY worth according to the latest numbers , any downscaling there shouldn’t have a big impact. Boj will also have realised that low inflation is a lasting factor for all big economies, they shouldn’t hide to much behind that excuse for to much longer imo. Hence my plan for now is still to start to look at a stronger JPY from April/ May providing the gap between the real interest rates isn’t exploding with an either more hawkish than anticipated Powell or the Tax plan seeing a massive inflow of offshore USD back into the US.
Thanks to you K. Yes I think we could see EURJPY hitting 140 even with USDJPY below that key 115.
We agree on the main points, the issue now is when it will start. I think it could be later then spring but for sure April and May will need particular attention for all the sound reasons you’ve pointed out. Let’s see what this year brings π
The thing that would make me rethink of everything would be a clear break of USDJPY through 115/116 or a collapse of bonds with yields spiking up
For sure 115 will be a red flag psychologically, big barriers waiting there, for who ? We don’t know but looking at the downside being 110 , it’s one of the major players in the market for sure( a bicolour cute bear?). A Nikkei, rates, Japanese govt stimulus induced break could be explosive before things turn around later this year. We may expect a serious fight n the process.
Great analysis from all and thanks Magic and K…..I will stick to my guns for now and hold the sell USD. Just call it old doggedness. I can average my lot out post-NFP`s and still make money π
Big day for the DXY today. Can 92 continue to cap the rally`s? Still a Dollar story