By: Christopher Lewis

The USD/JPY pair has been a battlefield of sorts between the entire planet, and the Bank of Japan. The BoJ has intervened several times over the last year, and the markets continue to sell this pair over and over. However, the BoJ has something the rest of the world doesn’t have: The ability to flood the market with Yen.

The recent battle lines had been drawn at 76.50 or so, and the level held quite firmly for roughly three months. The recent break below it was cause for concern by the central bank, and it certainly will have caught their attention. With the Federal Reserve promising ultra low interest rates until the end of 2014, the Dollar got whacked and continues to be so.

The Bank of Japan will find itself getting involved again, as the only real support for the Dollar against the Yen is the very fact that they exist. The market would certainly be much, much lower if it weren’t for the BoJ. In fact, there have been reports out of analysts that suggest a 50 handle if it weren’t for the central bank and its actions.

Hammer Time

However, even saying all of that above, there is a sign of hope for bulls on the close of the Wednesday session. The close saw a hammer just above the 76 handle, an area that had served as support previously. Also, one has to think that a lot of traders aren’t willing to sell at this level, knowing that the trade will be pushed back in their face. Because of this, the pair can only be bought, and most traders know this.

The intervention candle from October started at 75.50 or so, and because of this, there has to be a ton of support sitting in that area as well. Certainly, the sellers are going to find the next one hundred pips to be much harder to get than the last several hundred. It is here that the real fight will begin. Because of the players involved, I am siding with the central bank. Can they keep the rate up for the long-term? Probably not. However, they certainly can push the rate up 300 pips.