The US dollar rose against the Japanese yen on Monday, as liquidity could have been a factor, but at the end of the day, rates continue to favor the Greenback.
USD/JPY
The U.S. dollar initially pulled back just a touch against the Japanese yen on Monday, but with Japan, Canada, and the U.S. having holidays of varying intensities affecting liquidity, this is a market that is simply drifting.
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We have been bullish over the last couple of weeks, but it has been more of a grind. When I look at this chart, I can see that the ¥159 level is an area that has been important a couple of times, and therefore, I think that does make a nice target, but it also makes a bit of a barrier. If we can break above the ¥159 level, it could open up the possibility of a move to the ¥160.5 level.
Buying dips still in this pair.
Short-term pullbacks invite buying, as far as I can tell. With interest rates in America far outpacing interest rates in Japan, the intervention that we had seen the previous 3 times in this market was designed to slow down the appreciation of the U.S. dollar, or maybe more precisely, the depreciation of the Japanese yen. But there is only so much that the Japanese can do.
Quite frankly, the Federal Reserve is expected to raise rates by at least 25 basis points more between now and the end of the year. At the same time, Japan is more of a wait-and-see type of situation. They cannot raise rates too quickly because of the massive amount of debt that the country currently has.
All things being equal, I remain bullish. I remain positive on the carry trade, but I recognize there might be some words here and there coming out of Japan attempting to slow things down.
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