Long-term trends in the strength of the Japanese yen were witnessed for the longest time in the currency’s history only during the period between 1985 and 1995. The only interruption that occurred was during a stint in 1989. This stability resulted in a very amazing 71% rating of the JPY against the USD
Sometimes though, sudden reversals have to occur which might have rather violent outcomes to investors. These reversals occurred in 1990 and later on in 1998. At the present indications, the USD is heading for an over-bought condition when viewed against the JPY. There is therefore a real danger of a sudden trend reversal. The world ought to be aware of these dangers and should prepare accordingly.
One might say that the further we go in the task of predicting the behavior of the Dollar against the Yen, the closer we get to the point of trend reversal. When the present scenario is closely observed, one can clearly see that things are not as bad as they were in 2002. In 2002, there was a multi-year reversal.
The most critical considerations are the ones which do not favor the USD when it is compared to the JPY. This is due to the US Trade Deficit that resulted from the US invasion of Iraq. As rising imports outstripped the exports in the last five months, things could not have gotten worse. September last year was the month when the trade deficit expanded with the widest margin that was preceded by a 6-month culmination period. According to the Department of Commerce, there was a record increase in imports which by far outstripped the substantial incomes gained from exports.
At present, indications reveal that the USD stands at 75.70 against the JPY. This tells the policy makers and economists a lot about what exactly has to be done to restore the trend that had already reached a stabilization point before the onset of the pangs of recession. The need for shorting the USD against the JPY has never been more urgent than it is today. However, it should be borne in mind that reversals take a long time to unfold. Sentiments cannot change overnight; they do tarry. A certain measure of patience would be in order.
One of the ways through which the trends can be reversed and brought back to normalcy is if some unforeseen event turned the economic fortunes of some countries into misfortunes and othersí misfortunes into fortunes. In July last year, a spike up had taken the figures up to 114 before corrective measures were put in place and everything went back to normalcy.
[ad#downcont]That is just as far as things go concerning a comparison between the USD and the JPY using long-term yardsticks. When a comparison is made on short-term basis, one can see a massively overbought USD against the JPY. The situation has been this way for the last 12 months. In this case, it appears that shorting the USD is the only way out. Meanwhile, only time will tell how future trends will shape up.