The interest rate differential continues to be a mainstay of this pair, as we are levitating into the weekend, looking bullish overall.
USD/JPY
The US dollar has been noisy against the Japanese yen during the trading session here on Friday as we are simply hanging around the 156-yen level. I think at this point in time we are probably due for a little bit of a pullback, but I do not want to buy the yen. What I want to do is buy cheaper US dollars.
The interest rate differential continues to favor the United States and that will play a major part in where we go next. Ultimately, I think this is a scenario that remains a buy-on-the-dip for some time, and I just don't have any interest whatsoever in trying to fight the interest rate differential.
The Long-Term Problem for Japan
The 158-yen level followed by the 159-yen level, both I think are resistance and I think it's going to be difficult to get above there. But if we can break above the dollar-yen reading of about 162, that's the highest level since something like 1990.
So, we are on the precipice of something big. We could be talking about 100 yen before it's all said and done. That doesn't mean that you put all of your money in aiming for 250 yen, but I think you have to understand that this is a long-term problem for Japan, and I think it continues to be so.
Shorting the yen against a multitude of currencies might be the trade for the next several years, and this is the first place you do it, but there are other places: the Australian dollar, the New Zealand dollar, British pound, etc. I have no interest in shorting this pair. It would have to break down below the 150-yen level for me to rethink things. That doesn't mean I chase it up here though, and that's the point of the analysis.