Japanese Yen traders continue to absorb the latest round of intervention by the government that took place on October 31. With prices holding above an uptrending Gann angle at 1.2957 and a key 50 percent level at 1.2923, traders are demonstrating that they are not afraid of the government’s threats to weaken its own currency. The next obstacle to overcome is a downtrending Gann angle at 1.3077, followed by 1.3170.
As long as the market holds above the uptrending Gann angle while moving at the steady pace of .0025 per day, the December Japanese Yen appears to be poised to reach the top of the range at 1.3264 by December 7 or 8.
With traders apparently poised to make another run at the top, the question appears to be whether the Japanese government has the firepower to take on the steady buying that is currently taking place. This decision is going to have to be made soon based on the release of this morning’s worse-than-expected exports report. The figures suggest the Japanese government may have to take a more preemptive approach to weakening the Yen.
This morning’s report showed Japan’s exports fell at the fastest pace in five months. The trend suggests a strong Yen and weakening global economy may continue to exert pressure on the fragile economy still trying to recover from the effects of the earthquake and tsunami in March. After posting a 1.5 percent increase in GDP during the third quarter, today’s weak exports report suggests the rebound in the economy is likely to stop cold in its tracks.
In addition to the problems in Europe, the floods in Thailand are also having a negative impact on Japanese exports. This problem could linger for months meaning the Japanese economy could face negative exposure well into 2012. The question that arises is how the government can continue to afford to take on the speculators when the reason for the weakness in the economy may be from more troubling outside forces like Europe or the floods rather than the strong Yen as it claims.
If the economy continues to weaken then this condition may force the Bank of Japan to actually begin to ease its monetary policy. This opens the door to a huge rise in the Japanese Yen if demand for liquidity continues due to the major problems in Europe. It looks at this time the BoJ and the government has their hands tied. Eventually most interventions fail because the central bank runs out of bullets and caves in to stronger market forces. This appears to be the case now.
