Market Analysis: The Yen

by: Hale Stewart

Before we get into the charts, here is a link to the latest BOJ meeting minutes that were released yesterday. The short version of the domestic situation is that the numbers have stopped weakening. However, there is a great deal of expectation built into the numbers.

For example:

Exports were expected to start picking up, mainly against the background that overseas economies would gradually emerge from the deceleration phase.

Business fixed investment was projected to remain somewhat weak for the time being, mainly in manufacturing, but follow a moderate increasing trend thereafter, partly due to investment related to disaster prevention and energy.

Although there still was a high level of uncertainty, it seemed likely that industrial production for the April-June quarter would pick up, mainly reflecting a moderate recovery in overseas economies.

While all of the above scenarios may come true, they are based on expectations of future growth that may not come. All that said, let's turn to the yen.

First, the above charts shows the yen's yearly performance vs. the Australian dollar, the dollar, the pound, euro, and Swiss franc. Obviously, the yen is the clear net loser on this chart.

Above is a yearly chart of the yen's ETF. Notice the extreme sell-off that occurred starting in mid-November. We wee this translate into very negative readings across all indicators -- EMAs, MACDs, and CMFs. Also, notice the increased volatility implied by the widening Bollinger Band indicator. There have been three periods of sideways, slightly upward sloping consolidation -- mid-November, mid-December, February, and March. However, these have all been accompanied by further moves lower.

The weekly chart shows the real damage from a technical side. This is a five-year, weekly chart of the yen's ETF. Prices have moved through levels last seen in Q1 2012, Q2 2010, and Q1 2009. Again, we see very negative technical indicators at extremely negative readings. Also, notice the increased volatility from the widening Bollinger Band readings.