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Where Is The Yen Going From Here?

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This article is more than 8 years old.

In my last Japanese yen update in May, I showed that the yen had experienced a technical breakdown from what appeared to be a wedge pattern - a common chart formation that often leads to further moves in the direction of the primary trend. The yen weakened after BoJ Governor Haruhiko Kuroda stated that he is willing to adjust monetary stimulus to hit BoJ’s inflation target. Since the yen's technical breakdown from that wedge formation in late-May, it has consolidated near its worst level in over a decade against the U.S. dollar.

Japanese yen futures may be forming another wedge-type pattern underneath the .8200 resistance level that marked the bottom of the last wedge. The yen must stay under the .8200 resistance level for the recent breakdown to remain valid. If the yen also breaks down from the latest wedge and falls under the .8000 and .7900 levels, further weakness is likely.

Source: Finviz.com

122 is the key support level to watch in the USD/JPY and is equivalent to the .8200 resistance level in the yen futures shown above. The USD/JPY needs to stay above 122 for the recent breakout to remain valid. A breakout from the latest wedge and a rise above the 125 and 126 levels may signal further gains ahead.

Source: Finviz.com

The longer-term yen futures chart is helpful for visualizing the recent wedge and breakdown:

Source: Finviz.com

Here is the longer-term chart of the USD/JPY:

Source: Finviz.com

BoJ Governor Haruhiko Kuroda has sent mixed messages regarding the central bank's stance on the recent yen weakness. After the yen breakdown in early-June, Kuroda asserted that the yen was unlikely to weaken much further - a comment that was interpreted as a verbal intervention to prevent an excessive slide in the yen. After the comment, the yen regained some strength and has been consolidating for the past month. Kuroda has since backpedaled by saying, “So far a weakening of the yen won’t be an obstacle to the flexibility of monetary policy."

As I wrote in my last yen update, I am concerned that yen weakness will eventually get out of hand in the coming years due to the country's still-stagnating economy, 227.2 percent public debt-to-GDP ratio, demographic headwinds, and 80 trillion yen ($650 billion) per year quantitative easing program that is debasing the currency and causing the economy to become addicted to stimulus. For this reason, I am watching the recent breakdown very closely and curious if there will be another bout of weakness when the latest wedge pattern resolves. At the same time, it is important to watch the key technical levels shown in this piece in case the yen actually strengthens and negates the recent breakdown.

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(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)