Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Please try again

Live Webinar Events


Economic Calendar Events


Notify me about

Live Webinar Events
Economic Calendar Events






More View More
Japanese Yen Reversal Risk Grows - Will History Repeat itself?

Japanese Yen Reversal Risk Grows - Will History Repeat itself?

David Rodriguez, Head of Product


Fundamental Forecast for Japanese Yen: Bullish

The Japanese Yen snapped a multi-week losing streak for the US Dollar as it rallied noticeably off of recent lows. A slowdown in global economic event risk may produce smaller moves ahead, but we’re watching key levels on the USDJPY as the risk of a larger JPY correction grows.

Traders sent the Japanese currency near fresh multi-year lows into the final trading days of 2014, but an important bounce in the New Year suggests conviction in the JPY-short trade (USDJPY-long) has faded. Price action seems remarkably similar to what happened exactly 12 months ago: the USDJPY topped on the first trading day of 2014 on its way to a four percent correction. A comparable move would send the Dollar to ¥115 before a resumption in the overall uptrend.

A relatively quiet week in both Japan and the US nonetheless suggests traders may wait until the following week’s highly-anticipated Bank of Japan policy meeting to force big Yen moves. Yet traders should keep a close eye on USDJPY price action as it trades at potentially significant price support, and a break below month-to-date lows near ¥118 could force a larger move towards December’s trough at ¥115.60.

A strong correlation between the Japanese Yen and the Nikkei 225/US S&P 500 tells us the next big USDJPY move could coincide with equity market turmoil. An important drop in the S&P Volatility Index (VIX) shows that few fear any such tumbles, but market conditions can and do change quite quickly.

Overall outlook for the Dollar and Japanese Yen in 2015 make a USDJPY-long position one of our favorite trades of the year. Yet a year is a long stretch of time in trading markets, and prices do not move in straight lines. We are cautious on fresh USDJPY-long positions given clear risk of a larger short-term correction—particularly ahead of the Bank of Japan meeting on January 20.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.