April 11, 2013

From an historical perspective the Yen move is only just beginning

I first alerted readers to a pending bull market in the $USDJPY (weaker Yen) in mid December. See here. At the time the $Y was just above 84.00 Amid screams in the halls of conventional wisdom that the Yen had moved way too far too fast, on January 15 I posted a blog titled, "The Japanese Yen is overdone -- oh really!" At the time the $Y was just above 88.00. In this post I projected a move to 92.50 and then 100.00. I was not done. On April 4 I added a post, stating that the $NZDJPY was on the merge of moving 400 to 500 pips. See post here. In the past five trading days the $NZDJPY has advanced 550 pips. So what's next? The blogosphere is loaded with comments that the Yen is way overdone -- that the bullish sentiment on the $USDJPY (bearish sentiment on the Yen) cannot be sustained. Folks arguing this position would march out a chart similar to the one below.

I challenge this market consensus. Most certainly the $USDJPY has come a very long way in a short time, and a sharp correction may (or may not) be in order. But any such correction would represent a buying opportunity in the $Y.

The current weakness in the Yen (advance in the USDJPY) must be put into historical context rather than analyzed based on a 14-day RSI chart (or its equivalent).

The chart below is a monthly graph of $USDJPY dating back to 1969. This chart (up to date through early April 2013) would indicate that the move in $Y has only just begun. Further, consider past bull moves in USDJPY, as shown on the table below:
Previous bull markets in $USDJPY Point % Quarters Low High change change 6 7 4 10 10 9 14 8.6 2 174.37 195.01 219.06 120.25 79.7 101.26 101.67 76.57 259.94 278.09 263.57 160.35 147.63 135.16 124.14 99.83 85.57 83.08 44.51 40.1 67.93 33.9 22.47 53.9 23.26 49.1% 42.6% 20.3% 33.3% 85.2% 33.5% 22.1% 40.9% 30.4%

Period 1978-1980 1981-1982 1984-1985 1988-1990 1995-1998 1999-2002 2005-2007 Avg 2012-Mar '13

Source: Factor LLC research

While on a percentage basis the current advance is entering the zone of the previous seven bull markets of the modern era, and a perhaps sharp correction could occur, I will argue that this advance has a long way to go for two reasons. 1. The current bull trend is only two quarters old previous bull trends have averaged 8.6 quarters. 2. The last advance from the level of an extremely expensive Yen (1995-1998) carried the cross rate 85%. The advance in the $USDJPY is from over. ###