The USD/JPY pair fell slightly during the session on Monday after initially gapping higher. Ultimately though, this is a market that has more than enough support below to continue to drive it higher. The Friday candle of course is very impulsive and green, and that means that we should continue to see quite a bit of bullish pressure in this market and should see this market reaching towards the next logical resistance barrier at the 125 handle. The 125 handle of course is a large, round, psychologically significant handle, and of course where we had formed the latest high on the longer-term charts.
I believe that this market will continue to go above there as well, simply because the interest-rate differential between Japan and the United States should expand. The Federal Reserve have us to deal with the stronger than anticipated jobs number, and that of course means that the Federal Reserve may have to raise interest rates fairly soon. Ultimately, the Bank of Japan is on the exact opposite path, meaning that they are nowhere near reason interest rates. This should continue to drive money into the US dollar and away from the Japanese yen.
This benefits Japan anyway
Because of this, the value the Japanese yen should continue to drive lower, and that of course benefits Japan. In other words, you will not see any interference out of Tokyo. Cheaper currency means that Japanese products are much cheaper for American consumers. With that being the case and the fact that Japan is a highly export driven economy, this actually benefits the Japanese over the longer term as they sell more of their goods. Quite frankly, the Federal Reserve and the Bank of Japan are the two absolute masters of quantitative easing, and as a result I believe that the Japanese will take this opportunity and run with it. I’m buying pullbacks and pushing towards 125. Once we get above there, the next target of course will be 130.
