Why Buy the Japanese Yen?

The long-term picture

The long-term chart clearly shows that the USDJPY exchange rate is in the process of completing a head-and-shoulder reversal and that the pressure is on the down-side.

We recommended to buy the JPY against USD on November 7, 2002, at 121.83. The technical argument for buying JPY is however even stronger today.

Once we break the neckline decisively, the way will be open to retest the low of January 2000 at around 100. It will of course not happen over night. But market-movements sometimes are quick and sharp as is demonstrated when the USD collapsed in the autumn of 1998 (see arrow).

The Japanese Central Bank will naturally try to stop the ascent of the Yen and it is rumoured that it is intervening secretly. It is however well-known that market forces will win in the end.

The medium-term picture

In the chart picture below, you see what is commonly described as a "Shoulder" in so-called "Head-and-Shoulder-Formation", a typical reversal pattern.

Even the layman can easily detect what has been happening since last summer. Several times the JPYUSD exchange rate fell back towards the level of 115 to 116 and bounced off. The support-zone or floor has been able to absorb any selling pressure up to now.

On the other side, it is clear that any rebound since last October lost strength and has not been able to surpass the previous high.

We conclude for this reason, that the neckline, or support, in spite of attempts by the Central Bank to the contrary, will eventually cede, opening the way for a much stronger Yen.

The short-term picture

Short-term, we see make out what may be the last bounce before the support finally crumbles.

While of course we do not know how determined the Japanese will be in attempting to defend the 115-116 level, we think that it will only delay the final victory of market forces.

The following recommendations were valid at the time of writing, viz. at

and not necessarily when you happen to read them.

If you are interested in currency trading, please consult our Presentation at www.pzim.com or email to [email protected]

Peter Zihlmann

May 13, 2003