The USD/JPY pair fell precipitously on Friday as the US employment numbers came out in a very disappointing manner. With only 96,000 jobs added in the month of August, as well as 365,000 people leaving the workforce, it seems that the Federal Reserve is "painted into a corner" as far as quantitative easing is concerned.
With the Federal Reserve looking to ease its monetary policy, it makes sense that the US dollar and lost ground against most currencies. However, this pair is a bit different in the sense that the Bank of Japan is actively working against the value of the Yen as well. In other words, it is a fight between two central banks trying to make their currencies as ugly as possible.
The Bank of Japan is well known for interventionist tactics in this currency pair, and in fact has recently admitted to clandestinely intervening in this market. This is suggested just after we busted out above the 78 handle, and this is why I believe that the market is having trouble getting below 78 now. It seems that the Bank of Japan is manipulating the market yet again, as the 78 handle has suddenly become a concrete wall of support.
78.00
One thing that is very striking to me on this chart is the fact that the 78 handle was hit to the exact pip on Friday. We fell precipitously after the Non-Farm numbers, but stopped exactly at the handle. This to me suggests that the Bank of Japan is without a doubt defending the level.
It is because of this that I still don't feel comfortable shorting this pair, even though it is very obviously bearish. I believe that if the Federal Reserve disappoints in the amount or tactics of quantitative easing next week, this pair could get a significant bounce. This is exactly what I am intending to do, as I think the consolidation area between 78 and 80 continues over the longer-term.
However, if the currency pair does drop down below the 78 handle, I will be willing to buy this pair down there as well on signs of support mainly because I believe that at that point in time, the Bank of Japan is more than willing to intervene in a very open manner in this currency pair.