The USD/JPY pair fell during the Monday session, continuing the breakdown of the wedge that gave way recently. However, I am bit cautious about this pair because the nonfarm payroll numbers not coming out last week. This particular pair tends to be very sensitive to that announcement, and this will certainly be the case as the Federal Reserve has suggested that the employment situation is going to be a major drive of whether or not the Fed tapers off of quantitative easing anytime soon. To be honest, I think that the Fed is staying out of the tapering situation until at least spring of 2014.
The pair breaking down of course suggests that the Yen could strengthen going forward, but the Bank of Japan will continue to try and talk down the value of the currency. The Bank of Japan should start working against the Yen as soon as this pair continues lower, and because of this I am honestly a bit afraid of shorting this pair.
A battle of two weak banks
The Bank of Japan and the Federal Reserve continue to be easy as far as monetary policy is concerned, and with that I think this pair will continue to be a back and forth affair going forward as far as I can see. The pair broke down below the hammer from Friday, which of course is a negative sign, and this shows the market is ready to continue lower, but the noise below seems to be a bit of a hazard as well.
The pair is often reflective of the yield differential between the perspective 10 year notes of these countries, and this of course should be watched as well. The higher yielding bonds normally attract the flow of money, and as a result I think that the United States will continue to be favored in the long run over Japan, as the Yen will continue to fall overall against most currencies. The Asian economies in general are a bit soft at the moment, but Japan is a special case – it’s a bit of a basket case.
