Yen's Fate Depends on US Data

Last updated 3/5/2010 3:51 AM ET (GMT -5) 3 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Dollar strengthened against the yen on reports that Bank of Japan may increase its quantitative easing program in April from the current level of 10 Trillion yen. Japan’s three month Libor rates dipped below the US equivalent prompting a further rally in USD/JPY to 89.40.

The yen has been inordinately strong over the past several sessions with pair hitting a fresh yearly low of 88.14 in yesterday’s trade primarily on repatriation flows. Yen’s rally has been somewhat of a surprise to the market given the relatively steady performance of equities and generally better than forecast US economic  data. 

At below 90.00 USD/JPY presents a challenge to Japanese manufactures, but will become a serious problem if it dips to 85.00 level and remains there for a significant period of time. Most of the corporate hedges in Japan are clustered around the 92.00 level so a prolonged period of trading in the 80’s handle would put enormous pressure on Japanese corporate margins. 

Recent reports have surfaced that the Bank of Japan has beefed up its intervention war chest by 5 Trillion yen to 145 Trillion- it first increase in six years. However, its doubtful if any intervention measures will have more than a temporary impact on the market. At present, yen’s direction depends primarily on US economic performance, most specifically jobs data. As we’ve argued many times in the past the Fed will not consider any tightening measures until the US economy produces three consecutive months of positive job growth. Only then will US rates begin to rise leading to a sustained rally in USD/JPY.    

Comments (3)

Semaj

March 05, 2010 at 07:39 AM ET

Does your article suggest the Japan is concerned about a war? If so, why & with who??

bschlossberg

March 05, 2010 at 07:40 AM ET

Warchest is simply an expression. Meaning they are inventorying dollars to intervene in the market

Semaj

March 05, 2010 at 09:19 AM ET

LoL :)

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.