Usd/jpy outlook for Q1 2009 by imperialfxonline

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Below is an extract from imperialfxonline's 2009 Review and Outlook for Q1 2009

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USD/JPY

The dollar declined to a 14-year low versus the yen at 84.82 in November 2009 after it had earlier rebounded from 87.13 to 101.45 (despite the breach of the psychological 100.00 level, price was unable to close above there on a weekly basis in April), as investors dumped the greenback across the board with risk appetite re-entering the picture following the steep selloff in stocks seen in 2008. In addition, discussion over the dollar’s status as a global currency started up amongst European nations, China and even the Gulf states, with the latter being a result of a debate over the creation of a ‘supra-national reserve currency’, or something similar using the value of a basket of currencies. Japan-specific factors that supported the yen included increased optimism towards the Japanese economy in the months leading up to the Democratic Party of Japan (DPJ)-led alliance’s landslide election victory over the ruling Liberal Democratic Party (LDP) in September (which had ruled the country for over 50 years), which saw DPJ President Yukio Hayotama elected as Prime Minister.

However, the strength of the yen was always going to be a worry for Japanese exporters and traders were ever fearful of intervention by the Bank of Japan. The greenback rebounded strongly in December as verbal rhetoric from both Japan and U.S. officials ignited sizeable short-covering ahead of the year-end and economic data out of the U.S. also boosted hopes of a sustainable U.S. economic recovery. Usd/jpy ended 2009 up over 2% around the 93.00 level.


Outlook for Q1 2010:

The dollar’s rise from 84.82 from a fundamental viewpoint seems to be reflecting the divergence in the prospects of the U.S. and Japanese economies, with Japan cautious of a return to deflation and the Fed being encouraged by the housing recovery and pick up in production in the U.S. in late 2009. Both countries’ interest rate levels remain the lowest of the G7 nations but there is already talk that the yen would be preferred vehicle for funding carry-trades, especially if Japan’s economy continues to be the laggard among developed countries.

The technical charts, meanwhile, show near term bullish prospects for the greenback as it retraces the medium-term downtrend, as long as price can hold above support at 87.36, a correction to 95.00 and then 97.74/75 (50% retracement of 110.67-84.82) is likely in the first couple of months in 2010, however, the 2009 high of 101.45 is expected to remain intact and be followed by another fall towards the middle of the year (the 100 level looks set to make itself a barrier for the second time, especially if option-related orders start building up). The alternate scenario, activated on a breach of 87.36 would see dollar re-visit its 84.82 low towards the end of Q1.



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