The USD/JPY pair rose from the 105 level during the session on New Year’s Eve, and as a result we feel that this market has solidified the idea that it’s going to go higher. We still are very bullish of this market, especially considering that the two central banks are a polar opposites right now, with the Federal Reserve starting to taper off of quantitative easing while the Bank of Japan looks to continue a very easy monetary policy. With that being said, this is probably more about the Yen losing value than it is about the US dollar gaining strength, although both are true universally.
The Federal Reserve will continue to be the main driving factor in this marketplace, and therefore you have to pay attention to the employment situation in the United States. As the employment situation get stronger, and removes one concern that the Federal Reserve has as far as tapering off of quantitative easing. This market will continue to be very sensitive to it as the Bank of Japan has without a doubt made no bones about the idea of easing. On the other hand, there still quite a bit of questions when it comes to the Federal Reserve, so we have to pay attention to the jobs numbers as it was their number one concern when it came to whether or not they can taper off of quantitative easing with any type of certainty. Because of that, employment numbers, ADP reports, and anything else involving employment overall will continue to be the main driver of not only this particular market, but markets in general around the world.
Any pullback in this marketplace should be a buying opportunity as this pair has certainly changed its attitude recently. The last couple of months have been absolutely ferocious for the buyers taking over the market, and we now think that this market will head towards the 110 level first, and probably continue to go much higher over the course of the longer-term, possibly several years. This is starting to look more like the last major rally we had in this market before the financial crisis.
