A New Season for Yen Pairs?

While it may not be in the #1 spot on trader’s daily list of developments and concerns, this month’s G-7 intervention to devalue the yen, be it symbolic or real, is certainly in the top three, and could promote a spring buying spree for the yen pairs. If financial markets continue to stabilize as they did last week, the obvious pair to look to lead a rally in the yen complex would be AUDJPY with its yield providing a healthy dividend even without the margin.  This same pair proved a disappointment in the mid-spring of 2010 when the “Flash Crash” hit the U.S. stock market and decimated short-term holders of not just AUDJPY but all the yen pairs. For investors however, the May & June swoon of 2010 proved a nice buying opportunity for AUDJPY, and sets up those same investors who did buy that dip for the possibility of adding to a winning position on a potential break-out to higher prices – see Monthly chart below.

AUDJPY has been a favorite for long-term macro investors because of the favorable demographics Australia has over Japan – Australia has a bulging consumer class, ages 20 to 30, while that same age group in Japan is much smaller on a percentage basis compared to the rest of the population. And now coordinated defense of USDJPY, or specifically a plan to devalue the Yen, could mean a favorable trend shift for AUDJPY on both its short and intermediate-term trends. We will watch closely to see if the spring season heralds a bull swing for AUDJPY and the other yen pairs.  

Jay Norris is host of Live Market Exercise at Clovernest.com and the author of Mastering the Currency Market, McGraw-Hill, 2009. 

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