The US dollar has dropped a bit against the yen in early trading, as we are shying away from a potential intervention area.
USD/JPY
The US dollar has pulled back against the Japanese yen right at the 50-day EMA early on Monday as fears of intervention after the pair crossed the 160 yen level have resurfaced in the market. That being said, since then we've seen buyers come back in to support the US dollar as the Federal Reserve being somewhat hawkish at this point is still going to be a major issue.
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Yes, we've recently seen the Bank of Japan intervene a couple of times in this market, but it's not been enough to change the trend and, quite frankly, most of the time it isn't. It's more or less a play to stabilize a currency that is getting wrecked over the longer term.
Fundamental Drivers and Technical Outlook
With this being said, it is worth noting that most traders out there are going to continue to pay close attention to the overall interest rate differential and the fact that, unfortunately, the Japanese have a massive debt problem, and this is something that traders will have to take into account. After all, the Japanese won't be able to raise rates too significantly, and as a result, we are somewhat stuck at this point.
Overall, I still like buying dips in this pair, but full disclosure, I have been long of the US dollar against the Japanese yen for quite some time, and therefore, my cost basis allows me to put up with some of this excess volatility coming out of central banks.
Nonetheless, this is a market that, in the long term, should continue to favor the buyers as the swap pays so nicely at the end of the day. With this, I remain a buyer of dips, and I look at opportunities like this as a simple chance to add to an already long position. If we can break above the 50-day EMA, I think that accelerates some buying as well.
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