DailyFX Analysts Were Mixed On Yen Crosses To End January. Where Do They Stand Now?

A dismal labor report from the U.S., deteriorating fundamentals in Europe, a sharp drop in growth in Japan and weak company earnings dimmed hopes that the current downturn would rebound by the end of 2009 as had been previously forecasted. The credit crisis spreading to emerging markets and crippling their growth fueled concerns that there was nowhere to hide for investors and sent cash to the sidelines. Additionally, freefalling prices globally sparked concerns over deflation which added to the dour outlook for company profits. This led to the Yen setting new multi-year highs against most currencies. However, the end of the month saw risk appetite tick up as the U.S. was expected to pass an $800 billion stimulus plan and more initiatives to stabilize the banking system which erased some of its gains.

What Has Changed?

The U.S. government passed the stimulus plan and announced more initiatives including a $75 billion foreclosure prevention program. However, U.S. secretary Tim Geithner’s spooked markets when he failed to deliver details in his outline for helping the banking system which raised concerns that the government was lacking solutions to the problem. The following G-7 Summit was equally void of actionable plans which sparked a sell off of global equity markets. However, the USD/JPY pair didn’t follow suit which has raised the question, has the Yen lost its status as a safe-haven currency? Indeed, global interest rates are fast approaching zero, which reduces the carry trade implications for pair. Additionally, Japanese growth contracting by -12.7% in 4Q, 2008, has reduced the country’s appeal as a shelter. This week saw three of our analysts chose to go long USD/JPY with one exiting a short position. The pair has broken above its 100-Day SMA which could lead to a test of the 11/25 high of 97.44. However, the latest SSI report is showing the pair as overbought which as a contrarian signal could mean a reversal in momentum.