Japanese Yen: Update Your Priors

From the Desk of Ian Culley @IanCulley

Remember when anything priced in yen was trending higher?

It wasn’t too long ago that if you were looking for an uptrend, all you had to do was throw the yen in the denominator, and voila.

Just last month, the dollar hit a new 34-year high against the yen—levels not seen since the 1980s.

But the tables are turning in favor of the Japanese currency.  

While most central banks are either cutting interest rates or considering future rate cuts, the Bank of Japan (BOJ) is hiking—a policy shift that puts a bid beneath the yen…

A couple of months ago, I highlighted buying yen futures above .6500.

Fast forward to today, and I’ve adjusted the entry-level to the former 2022 and 2023 lows at approximately .6625:

The shelf of former lows provides a cleaner level with a more significant price memory. 

Yesterday, the yen reclaimed that critical level. 

As long as Japanese yen futures hold above 0.6625, I’m long targeting 0.7175 and 0.7875 in the coming months.

But if you’re avoiding the US dollar, you can buy the yen against your currency of choice. 

Now that the Japanese government is allowing sovereign yields to rise, the interest rate differentials that have buried the yen are beginning to flip.  

The result: failed breakouts a-la-yen…

The aussie-yen is sliding below the former 2013 highs, down more than ten percent since mid-July:

The euro is failing to hold above its former 2008 peak versus the yen:

The pound sterling is slipping back into a decade-plus range following fresh sixteen-year highs:

And, of course, the US dollar-yen pair is retreating beneath its 1990 peak…

The 152 zone marks are the breakdown level for USD/JPY:

The dollar-yen’s path of least resistance now points lower toward 143. Any pullback should find resistance at the May pivot lows that coincide with 2022 and 2023 highs (comparable to the risk level outlined for the futures contract).   

Perhaps buying yen isn’t the most popular trade. I get it. 

Who wants to step in front of this downtrend, especially after short Japanese yen was one of the best trades of 2022?

But the market environment is beginning to shift. Momentum is leading a bullish reversal in the Japanese currency. And recent dumpster fires, such as US T-bonds and regional banks, are proving winners.

Whether these newfound successes develop into sustained uptrends remains to be seen.

Meanwhile, we have our levels to trade against. 

What am I missing?

Is the yen a buy, or am I getting ahead of myself?

–Ian

Thanks for reading.

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