The US dollar jumped against the Japanese yen on Wednesday, as traders are looking to take advantage of the interest rate differential.
USDJPY
The US dollar has rallied quite nicely against the Japanese yen during trading on Wednesday as it looks like we are trying to find a certain amount of bottoming at the 200-day EMA, an indicator that a lot of people will be watching very closely. With that being said, you also have to keep in mind that the 152-yen level has offered support, so I think it all ties together quite nicely.
The interest rate differential continues to favor the US dollar, and rates are bouncing a little bit, but I think you have a situation where the Bank of Japan simply cannot tighten monetary policy seriously and as a result, it makes a lot of sense that eventually we break higher.
A Massive Long-Term Barrier
Pay attention to the 160-yen level extending maybe to the 162-yen level. That is a massive barrier going back to 1989 or so and if that breaks, we could see a long-term carry trade situation where the Japanese yen just gets pummeled for months if not years. That is how big of a level we just tested is.
Short-term pullbacks make sense. I think those offer buying opportunities at the 152-yen level. I have got no interest in shorting this. I do not pay swap as a general rule; I certainly won't do it now with the Japanese yen.
There is talk about potential monetary policy normalization in Japan, but we have heard that talk before and I do not know how they square that circle. I think you have a situation where quite frankly they just do not have the ability to do that. So, I am a buyer here and still believe that the dollar not only reaches the 158-yen level next, but eventually breaks much, much higher.