Should We Keep Selling the Yen?

Japan has been called the Land of the Rising Sun, but did you know that it’s also the Land of the Falling Yen? Lately, even the yen’s safe haven status hasn’t been able to counter the downward pressure of Japan’s weak fundamentals.

Aside from the 0.9% GDP contraction in Q1, Japan had to deal with another big downer this week as it released its April trade balance data. Its exports fell 5.5% and imports rose 3.8% last month, giving Japan its first trade deficit in the month of April since the 1980s, back when Pip Diddy still had a head full of hair!

Remember, exports was one of the few silver linings in the economy in Q1, so the fact that it slipped back at the start of Q2 is extra painful for Japan.

With such a dark economic cloud hanging over it, it’s no wonder the yen has been getting pummeled on the charts! I mean, take a look at how the yen has fared against its counterparts since the start of the year!

Performance vs JPY

As you can see, it has lost value against ALL of its major counterparts. It’s hard to imagine that even with the huge yen rally that we saw in March (USD/JPY fell over 600 pips in 1 week!), the yen is STILL the weakest among the currencies for the year. But that’s the cold, hard truth!

I looked at where 45 of the world’s largest banks predict the yen will be over the next 12 months, and they seem to agree with fundamentals. These banks (Citibank, Barclays, and ANZ to name a few) generally see the yen losing against the dollar, with both the median and the mean of their estimates placing USD/JPY at 88.00 by Q1 2012.

USD/JPY forecast

By all accounts, it seems that the yen will continue to lose ground. Japan’s fundamentals remain shaky because of the terrible damage caused by the earthquake-tsunami-nuclear disaster combo. In addition to that, the threat of the Bank of Japan (BOJ) doing a currency intervention is always just around the corner.

But of course, forecasts are just… well, forecasts! The future is very cloudy, and we all know that these banks have guessed wrong before. It’s better if you conduct your own fundamental analysis and look at your charts to see if you agree with the big boys!


  • Dean FX Paul

    Tend to agree with the Yen bears that the UJ will rise somewhat.. but don’t expect a massive bull run.

    The BOJ likes to keep things in a very predictable range. Also, the Yen is one of the biggest carry trade currencies used, which means it will always be in demand in some form or another.