The US dollar continues to threaten the crucial 160-yen level, an area that's been important multiple times, and I do think we need to pay close attention to that area.
USD/JPY
The US dollar continues to threaten the crucial 160-yen level, an area that's been important multiple times, and I do think we need to pay close attention to that area and the 160.40-yen level as it is a 1990 high.
When you look at the interest rate coming out of the United States and Japan in the 10-year, you can see that there is a sizable difference between the two. Although the Japanese yield has been rising, it's still a far cry from the US yield. I would also point out that getting paid at the end of every day makes the carry trade quite appealing.
If the 10-year yield in Japan were to start to fall, that probably sends this pair through that barrier and onto much higher levels. That's actually my base case scenario at the moment because there does come a point where higher yields in Japan really start to stymie the economy.
The Bank of Japan’s Impossible Policy Dilemma
The Bank of Japan simply can't allow a situation where yields get to be too high because then the debt spirals out of control and it has a damage on the real economy, or you push yields down and that destroys your currency. Those are a couple of their options right now. Furthermore, Japan gets a lot of crude oil through the Strait of Hormuz, which there's obvious problems there.
I like the idea of buying short-term pullbacks and I do think it's probably only a matter of time before we break out, but I also think it's pretty clear that somebody is defending the 160-yen level, so it's going to take some type of jolt.
This could be a big mover for months if not years, but we'll have to wait and see. The measured move from the entirety of the basing pattern that's been going on for the last 35 years, 36 years or so, is for 249 yen off the top of my head, so we're talking about a major event. Pullbacks at this point in time should continue to see plenty of support near 158 yen.
Potential signal: On a move above 160.40, I am buying this pair with a 200 pip stop. I would look to “buy and hold.”