These are very good questions and answers. Ive been searching also to find fundemental reasons for shorting the USD agaists the yen and come up short! No pun intended. Best I can figure is with differentials narrowing between the pair this would couse a reversal of the previouse trend that lasted some years I might add! Maybe John K knows this one but as the dollar gained streangth against the yen the interest rates for the dollar was higher. When the usd/jpy was at 80 in the past what was the differential? Im guessing it was tighter then had been. So any more interest cuts for the dollar will weeken the dollar against the yen futher? I believe the dow is heading for a 4500ish bottom. April oil futures are trading at 42 so the likleyhood of higher oil in the next 6 months seems nill. The rallies in the markets on bad news lacks follow threw. There are a few good names at a buck but once long term possitions have been taken then what do you invest in? The dow will start selling off on bad news again in the next few quarters. The news out of Asia wont be as bad in comparesen as they are MUCH more self reliant. They buy made in japan and china wich helps there econamy.We buy made in the same so how does that help North America? Toyota opened a NEW manufacturing plant in Canada yesterday! When the big three are at the brink of collapse!! I can go on and on with comparesins why the Asian econamy will be stronger then the Dollars in the years going ahead. We cut our own throats buy not manufacturing and BUYING our own goods like they do percentage wise. For years we have all been told to buy local yet very few do. You couldnt count on your fingers the products that most Japanese house holds have made in America there mostly made local. You would need a lot of paper to count how many products made in Japan and China in a average NoerthAmerican house hold. This is one main reason for the long term diffrance in streangth. Going forward sure japanese trade slows with other contries but they still are buying local goods helping there econamy more than we would be because we will still be buying there products as we dont have enough facilities to meet our own demand. As ever weak as this theory is its still a reality. The Yen will never be weaker than the dollar as long as we cant support our selves as they do. The Asians have been getting less reliant on the Western world in a lot of ways for years. I think the whole shift to green energy is a start. Not because of high oil or the so called emmisions related warming trend? Because its a way to lesson the import reliance on other countries. A way to keep transportation in house so to speak. The quikest way out of the ressestion is buy domestc products only!! If we dont have them make them. Untill we do this the trend is down I think anyway. So you know how long that might take. The 7350 low on the dow last week will be tested and broken. You know the old saying if you never got a chance to buy at the low just wait youll get another chance.

thank you all for your great posts.

i agree with firewalker that the us economic fundamentals are a supporter of dollar weakness, which is agreed to by a lot of people anyway. but i still think that yen isn't the currency against which the us dollar would depreciate much further.

whipper mentioned that because both asians and north americans are buying made-in-asia, so japan would be better off. i want to separate japan from china and the rest of asia.

first, the principal driver of all is exports to the us and internal demand is less prominent compared to that of the us. asian countries are all savings nations rather than spend-all-you-have kind of countries. with exports to the us severely affected, the next country they can turn to is china, the second largest/first largest customer to asian economies. but china depends a lot on exports to the us. so i think spending by private sector will not be able to offset decline in exports as much of the private sector income depends on exports. they'll experience contraction in production. they can only rely on government spending.

second, china can spend money on infrastracture, but japan is already fully developed, they have world class infrastructure, what can they do? japan needs external demand to revive the economy. now the us is down, they can only turn to china. but because of political reasons, trade between china and japan can only remain as status quo with no improvement so long as japan remain an us ally, which i think will be so for some time. yes they have domestic demand like whipper said, but it simply won't be enough. though i agree with whipper that us equities aren't finished bleeding yet, capitulation they may, but down they go.

in conclusion, dollar has weakness and so does the yen, the only question is who is relatively better off. somehow i am biased towards the dollar on this (but i won't bet against new low(s) on the pair). and i think firewalker's "sideways congestion" scenario is more likely.

equities were up on friday with half a millions job loss. there isn't much news next week, except auto bailout hearing on tuesday and ppi on friday. if we have a mild week, i think i'll long the pair for a short short while.

appreciate your reply.

Sorry, this is a beginner question, but how can I invest in the yen? I've looked into opening a japanese bank account, but it looks like I need proof that I'll be travelling in Japan for 3 months to open the account. There's also the option of japan treasury bond's, but scwab want $100k minimum investment. Thanks for any info.

MGA

I guess the current USD strength is due to the "apparent" greater weakness in UK and EU.

In the same manner of thoughts, it seem that JPY economy is currently cash rich and therefore stronger. No matter what, they could finance their bailouts with cash, whereas US finance it with more debt.

But give it some time, as JPY exports fall further by great amounts, and hopefully by then US stocks and housing hit bottom, we should see this pair move up significantly.. I hope. And I hope to see, .. once again.. this pair trading at 140 in 3 - 5yrs.

I've gone short in anticipation of a break lower on the third attempt at 91. This looks like a big descending triangle to me now. I will be using a fairly wide hedge at 95, which is where the descending trendline comes in. USDJPY is not responding to the equities rally and also the SSI data from FXCM suggest another sizable stop out of longs is coming. I usually wait for the break to happen, but it is looking likely to me at this point. At the least, 91 will be tested and I can exit at a profit on a convincing bounce.

Looking at the 4-hr chart, the rally we had the last couple days has failed and the floor that the second leg up had launched from has given up overnight and become resistance. The oscillators have room to run. The 20-hr EMA continues to cap off rally attempts.

EDIT: I decided to go with a trailing stop at 100 pip risk. I don't like stops (they were made to be hit), but the reversal risk is too great to sit on an underwater short. I'm targeting the 1.382 extension fib measured from the 90.95 bounce to 100.50, which comes it around 87.50.

Attached Images

 

It is risk aversion. Investors (we're talking those with large accounts that have to worry about diversification and capital preservation versus the leveraged FX trader) are no longer looking for return but are rather concerned with capital preservation. The hedge fund industry is a good example of why risk aversion is so prevalent. More than half of those registered hedge funds are long only equity traders; and recently I read that that the top 20 (largest) performing hedge funds averaged 7 percent return. This statistic included long/short (it is impossible to sell short in any size and not have the market hone in on your position). In high volatility markets, with low liquidity, reduced bank trading presence and uncertain fundamentals, risk is amplified beyond any reasonable expectation considering the measly yields you can expect to pull down in times like these.

Knowing that capital preservation is first and foremost, traders look for security of funds and relatively low volatility. The US and Japan are the two largest economies in the world. Both have yields on risk-free assets (Treasuries and JGBs) that are extremely low but stable (especially JGBs). It is also true that Japan is cash rich - especially after so many Japanese sources of wealth have repatriated their funds.

You are right though, the global recession is impacting Japan more severely than many other countries. As one of the world's largest economies and one that is heavily dependent on exports and foreign investment, Japan is a particularly good lightening rod. However, as long as fear and the need for safety overwhelm demand for yield, the bleak prospects for activity (the ultimate measure of return itself) will keep the dollar and yen bolstered.

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

very well stated

USDJPY bottomed out around 80 back in the summer of 1995. Back then the Fed Funds rate was around 5.75 percent and the Japanese target rate was around 1.00 percent; so there wasn't a tight yield differential. It had more to do with the rebound in investment in Japan following the popping of the asset bubble in 1990 and the seemingly sound returns the economy was notching up despite the trouble brewing in other countries. By the time the government admitted many of its banks were insolvent the Asian financial crisis began to unwind and the USDJPY reversal was sharp.

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

short term view

Attached Images

 

I particularly noticed very strong support yesterday evening at the 91.92-94 area and then saw it move off that bottom of yesterday very soundly. Everything I am reading still points towards a stronger USD, especially with Japan looking like they have a worse going than we do with the global recession in place. Japan is such a large exporter, it really hurts them even if they are cash strapped. They will burn through it in conditions like these.

The US markets are acting as I suggested a couple weeks ago, with a nice rally, yet the dollar isn't quite following suit. Probably in large due to the auto makers issues that arose, and the jobs report being horrid, but expected.

I still think we are about to to turn the corner very soon as the bad news is priced in both the markets and currencies IMO. I am still placing my bet for a 100 USD/JPY short-mid term. I don't see 80 anywhere from anything I have studied/read. But hey, this is a crazy time and things can develop suddenly to make anything happen. But, as some have said many time, USD is a safe haven, which adds to my belief we will not see 80.

UsdJpy bear Tri 4Hour

Something to keep in mind is that real interest rate spreads for bonds (and even overnight spreads now) in USD and JPY are going negative against the USD (short term bonds have been going to 0% lately). I think that is driving money flows on both sides (US and Japan) away from holding USD. How long that goes on will be interesting to see.

For the YEN Guru's

Hello All,

The Govornment of Japan has stated they will intervien if price attempts to go below 90. Their export driven economy calls for efforts to preserve the same, HOW?

They need to Keep their currency cheap to keep their goods competitive and attractive to dwindling consumer demand.

Expectations: They are/will interviening, but HOW? Print more? Buy "stuff" from the international community i.e flooding markets with Yen... (they are cash strapped)

Japan is also a safe haven for other Developing nations.

Would Japan be better placed buying Goods & services of other nations to flood world markets with Yen or are they better placed buying Government/corporate issued paper of the same?

What would it mean if the USD/JPY float higher for the Eur/JPY $ Eur/USD?

this is what i think will happen

Attached Images

 

How long will USD/JPY go down. I went short at 91.90.
It is possible that goes up to 91.90 again.