USD/JPY Forecast: BOJ Risks Weigh on Yen

• The US dollar has bounce back against the Japanese yen during the trading session on Thursday, as it looks like we are consolidating just above the 200 Day EMA.
• If we can stay above the 200 Day EMA, eventually I believe that traders will be looking to take advantage of what could be a developing longer term uptrend, especially considering that the interest rate differential so heavily favors the United States dollar.

The Bank of Japan has had several issues recently, not the least of which will be the fact that the Japanese Government Bond market has seen a couple of days where there have been nobody willing to bid for Japanese debt. This is not a good thing and could cause serious problems for the Japanese going forward. In that environment, you can see a potential need for the Bank of Japan to step in and start buying bonds.

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This is exactly what “quantitative easing” is most of the time, and it does tend to work against the value of the currency.

Technical Analysis

The technical analysis for this market is a bit mixed at the moment, because we have fallen pretty significantly, so it’s a little bit of a stretch to say that we have the “all clear” to start buying, but at this point in time I just don’t have any interest in shorting this pair. I get paid at the end of every session to own this market, at least to the upside, and that’s exactly how I’ve been playing this. It’s been very boring, and quite frankly you have to simply hold this pair and forget it most of the time.

I do think that if the market were to break below the low of Wednesday, we could have a drop to the 50 day EMA, this is more of a swing trade for me, and therefore I’m not looking to do anything rash. I don’t have a huge position, but it’s worth noting that the prophet that I’m making gets bigger every day due to that swap. If we can break above the high of the last couple of days, then the next target will almost certainly be the ¥151 level.

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