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We are still working from the view a significant intermediate-term bottom is in place at 110.98— labeled IV—back on 2/11/16. From there we saw a rally and deep wave 3 test of the Wave 4 low. However, there are plausible alternative views given this setup…a break above 114.44 validates our primary rally view. But below 112.20 sets the stage for a new low—Alt 4—toward 109.

Interestingly, specs have turned quite bullish on the yen based on CFTC open interest data from the 3/8/16 Commitment of Traders Report showing:

  • Bullish 76%
  • Bearish 24%

Should this bullishness be taken as a contrary indicator?

JPY/USD compared to the Japan-United States 2-year Yield Spread and the Nikkei 225 stock
: You can see in the chart below the big divergence between the spread and currency value. Despite the spread moving sharply against the yen, in favor of the US dollar, the yen rallied sharply against the US dollar…was this the repatriation trade we have become accustomed to seeing over the years? But according to recent data, the decision by the BOJ during its last meeting may now be enticing investors to move back offshore with funds in search of greater yield; but this outflow has been blunted by institutional strategies to take advantage of yen-$ swap rates as explained by Marc Chandler today. With risk seemingly residing, evidenced by the bounce higher in the Nikkei (green line in the chart below; note when the Nikkei falls, the value of the yen rises—that is the repatriation trade)…but again, this correlation of higher Nikkei and lower value of the yen hasn’t happened since the Nikkei staged its rally from mid-February.

So a lot of interesting and unusual price action in USD/JPY of late, i.e. the correlation between the yen and stocks and yen and yield spread has changed recently. Will we get some normalization after today’s rate announcement form the BOJ? Worth a bet in front of the BOJ…We will find out shortly…