Yen Looks Vulnerable as Japanese Remains Weak Economy

(CEP News) - The Japanese yen continues to lose ground despite a sharp drop in equity markets.

The disconnect between equities and the yen could lead to further short term weakness according to some currency strategists. The USD/JPY, which is trading near the January highs, is close to testing important resistance point. Strategists and traders said the cross needs to break through 94.60 to confirm the recent uptrend.

This morning the USD/JPY hit a high of 94.43 and continues to hold gains trading 94.18.

Shaun Osborne, chief currency strategist from TD Securities said he is very bearish on the yen because there are growing concerns regarding the Japanese economy.

On Sunday the Japanese GDP for 2008 fell 12.7%, which was much lower than forecasted drop of 11.7%. Osborne also pointed out that the credit default swaps in Japan are starting to widen, which puts pressure on the currency.

He added he is expecting any rise in the USD/JPY to be reflected in other crosses like CAD/JPY.

“I think the yen is at risk of a general underperformance,” he said. “It revolves around a very weak fundamental outlook even weaker than the rest of the world.”

George Androulidakis, director of FX trading at the National Bank of Canada is also bearish on the yen. He pointed out that the recent rise in the currency was do a lot of seasonal repatriation factors and now with that factor starting to wane the U.S. dollar will continue to be the clear winner.

“I’m just not ready to bet against the U.S. dollar right now,” he said.

Androulidakis said he would need to see USD/JPY to break below 90.00 JPY to break the current uptrend.

Although there is a risk that the yen could fall lower in the short term , Nick Bennenbroek, head of currency strategy at Wells Fargo, said markets still remain very vulnerable. There is still a lot of uncertainty over the stimulus plans around and if the global economy continues to weak investors could jump back into the safe haven of the yen, added Bennenbroek.

Euro/USD up 1.46 cents to 1.2676
USD/CAD down 0.47 cents to 1.2563
USD/Yen up 0.58 points to 94.37
GBP/USD up 0.99 cents to 1.4311
AUD/USD up 0.81 cents to 0.6452
Euro/Yen up 2.10 points to 119.62
Euro/GBP up 0.41 pence to 0.8858
GBP/CAD up 0.61 cents to 1.7982
CAD/Yen up 0.74 points to 75.12

The U.S. Dollar Index is down 0.56 points to 87.45

All data taken at 2:24 p.m. EST.

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Posted in Categories: Economy, Eurozone, Forex, Japan, Releases, USA.

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