The 3-month rally in the USD/JPY is not hinting at any weakness so far. In fact, we have seen the complete opposite, as the Japanese yen extends its bearishness beyond the 94.00 figure, and there looks like almost nothing in the medium term horizon that can dampen the bull run.
… Abe merits?
The 'verbal intervention' by the PM S.Abe seems to be bearing its fruits so far, as even when he was a firm candidate to win December elections a weaker yen was his leitmotif, in order to finally quell the entrenched deflation that has been hammering the economy for more than two decades. Furthermore, recent news about incumbent BoJ Governor M.Shirakawa would step down before his natural term ends in early April has boosted hopes that the new Governor would be more prone to a softer yen, pushing the cross even further.
In addition, yesterday's comments by US Undersecretary of the Treasury, Lael Brainard - somehow nodding at Abe's monetary policy intentions to boost the domestic growth and spark inflation expectations - have done nothing but fuel the bear trend in the JPY, and at the same time allay risks of warnings by the rest of the major FX players in the next G7 and G20 gatherings.
The Japanese yen is now trading above the 50% retracement of the decline from August 2008 highs above 110.00 to October 2011 lows in the proximities of the mid 75.00s, and further upside impulse would target the 61.8% retracement level at 97.40, ahead of 98.00 and then the all-time psychological mark at 100.00
There is, however, a non-minor issue that can plot against the bears' plan: the end of the Japanese fiscal year is due at the end of March, and historically the yen tends to appreciate from mid-late February to mid April. Anyway, these future inflows of domestic currency would need to be really strong to eclipse the prevailing selling interest in the yen, accentuated by increased trade deficit figures as of late.
Technically speaking, expert Karen Jones at Commerzbank argued, "USD/JPY eased back to its 240 minute cloud and saw a strong rebound. It is possible that this is the only correction that we will see, however the intraday Elliott wave count is indicating a deeper retracement to 91.40 and possibly 89.55 is likely prior to another leg higher".