02-01-2018: March Japanese Yen: A Return to Inflation

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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What's happening with the Yen. The Japanese are going from negative back to zero interest rates as their economy shifts from a deflationary to an inflationary one. This would be attractive to outside investors looking for either a safe haven or unwinding carry trades and repatriating funds back into Japan. This trend is anticipated by some major banks to be about to carry along for a considerable time into 2018.

Intermarket Analysis

We fed the Japanese Yen, Swiss Franc and the Euro Currency into a neural network to get the following result:

Parabolic Chart

March Japanese Yen:

Parabolic Chart

Nirvana Chart

March Japanese Yen:

Initial Chart

News Analysis

The Yen has been the beneficiary of weakness in global equity markets and remains the safe-haven currency of choice. There has been an uptick in Japanese unemployment and a worse-than-expected reading on Japanese household spending, both of which the Yen has been able to overcome. Also, there is delay in the Bank of Japan pulling back on their stimulus measures. Despite even that, the Yen looks strong enough to go higher according to some analysts. The Dollar even has continued to ease against the Yen while at the same time gaining against a basket of six currencies as U.S. bond yields have risen a bit and it awaits a U.S. Federal Reserve policy meeting for fresh catalysts. The Dollar is at a level against the Yen not seen since September 11th. The U.S. 10-year treasury yield reached a peak of 2.727%, the highest since April, 2014. There has been quite a bit of short-covering on the Dollar.

The Dow posted its worst session of the year yesterday as this is being written, where a selloff continues and the Dow dropped 300 points. However, U.S. January Consumer Confidence Index reached a higher-than-expected level. U.S. mortgage rates jumped to 4.5% for some lenders, an ominous sign for the housing market.

In later news coming in, the Japanese jobless rate rose to 2.8% from 2.7% as labor force participation declined from 60.6% to 60.5%. Even so, unemployment remains at 1994 lows and the Bank of Japan's focus is hitting its elusive consumer price index target of around 2%. Job-to-applicant ratio rose to 1.59 instead of 1.57 as forecasted, over 1.56 earlier.

Japan ordered compensation for nuclear plant evacuees, of around 7,330 British Pounds to each household forced to evacuate because of leaking radiation, but some of the displaced criticised the handout as too little too late. Fresh fears for the damaged Fukijimi site allowed "suicide squads" to be paid huge sums for aiding cleanup at the site.

The Bank of Japan returned to zero interest rates (from negative rates) as it pledged to pump five trillion Yen into the struggling economy.

Profits at Nintendo and Honda tumbled in latest earnings reports.

Japan used to be described as a nation of 100,000,000 middle-class people. But now the recently rich hae taken to flaunting their wealth there while the rest of society prepares for a recession in a nation of haves and have-nots. This is a warning for the U.S. and current Trump Administration policies.

Most banks expect the USD/JPY pair to move toward 105.00 from current levels of 112.00 in 2018. The Japanese economy has been expanding since 2012 and will continue in 2018. This should support the Yen, however local businesses are unsure whether the gradual improvements will be long-lasting. Japanese politics has a big influence on the Yen. Prime Minister Shinzo Abe's crushing victory in the October election means a continuation in the same economic policies which appear to be working, forcing the Yen higher. Weakness in the U.S. Dollar will also greatly strengthen the Yen, and it appears the current U.S. Administration favors a weak Dollar with inflationary policies to help exporters.

Morgan Stanley has been arguing that 2018 will be the "Year of the Yen." Inflation all around the world will bring attention to an undervalued Yen based upon economic fundamentals they say. Japan, which has been suffering from deflation for decades, may finally see inflation return. The BOJ has been fighting an all-out war on deflation. A bane of the deflationary years was the outflow of money into currencies which paid higher interest rates. A turn away from the BOJ's aggressive policies as inflation returns could drive repatriation demand up. Low borrowing costs set by the BOJ attracted international investors who borrow large quantities of Yen at very low cost so they can invest them in moire risky assets overseas. This type of investing is called "carery trading." But when global risks increase, as they are now, borrowed money is repatriated back into Japan.

Technically, it appears the USD/JPY upside is capped.

Point & Figure Chart

107.0I                                                                  T  1/29
     I IMM - Mar-18 Japanese Yen, 12.5 m yen, c/y  Cm.=0.03  Lim.= 0.3
     I  X                               X
     I  XO                              X
     IX XO                              X   X
     I  XO                              X XOXOXO
     I OXO                              XOXOXOXO
     I O O                              XOXOXOXO  X
     I   O                              XO OXOXO  XO
     I   O                            X X  OXOXOX XO
     I   OX                           XOX  OXO OXOXO
     I   OXO                          XOX  OX  OXOXO
     I   OXO                          XOX  OX  O O O
     I   OXO                        XOX    OX      O
     I   OXO                        XOX    O       O
     I   OXO                        XOX            O
     I   O O                      X XOX            O
     I     O                      XOXOX            O
     I     O                      XOXOX            O            X
     I     O                      XOXOX            O        X   XO
     I     O                X X X XO O             O        XOX XO
     I     O                XOXOXOX                O        XOXOXO  X
     I     O                XOXOXO                 O        XOXOXO  X
     I     O                XO O                   O    X X XOXOXO  X
     I     O                X                      OX X XOXOXOXOXOX X
     I     OXOX             X                      OXOXOXO OXO OXOXOX
     I     OXOXO    X     X X                      OXO O   O   O OXO
     I     OXOXO    XO    XOX                      OX            O
     I     OXOXO    XO    XOX                      OX
     I     OXO OXO  XOXO  XOX                      O
     I     O   OXO  XOXO  XOX
     I         O OX XO OX XOX
     I           OXOX  OXOXO
     I           OXOX  O OX
     I           OXOX    O
     I           O O
          1111         1111                    11111              11
The above chart is giving a conventional buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a weak seasonal up period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Thrust." It is giving a sell signal.

Internal Printout 1

Results of "Thrust" for Japanese Yen (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has just triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1,250. Initial margin on a single contract is $2,200. Use of options is advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests a current uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Japanese Yen June 92 Put and Sell (1) Japanese Yen June 93 Put @ 0..0054 to the sell side or greater.
Note: Values on charts are multiplied by 100.

o 1 o 2 o 5

Calendar Spread

What the Mar. - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -0.80 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -2.30 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be midway with no particular trend detected in either direction.

Level Table:

Level Table

We believe path of least resistance is down despite what the Steidlmayer Market Profile chart shows below.
 97.0|                                                                  T  1/29
 IMM - Mar-18 Japanese Yen, 12.5 m yen, c/y  Cm.=0.03  Lim.= 0.3
 87.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.667
                                         1 1 1 1 1 1 1                
       1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 0 1 1 2 2 1 1           1
       3 1 2 1 2 1 2 1 2 0 2 0 2 0 1 0 1 0 1 3 1 2 1 2 1 2           2
       1 3 8 4 8 1 6 0 4 8 2 7 1 4 8 1 8 2 6 0 3 8 2 7 1 6           9

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 1/29 ).

Intraday Chart

                 Risk Versus Opportunity Report

               JYH8    March Japanese Yen

                      High Price:  94.86
                   Current Price:  92.04
                       Low Price:  90.64

                            Risk:  0.030
                     Opportunity:  0.061

                    (O/R) Ratio =  2.014

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 1
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table - 1
Other Factors + 1
Total + 4
Place 6 March Japanese Yen on a Buy Watch with stoploss @ -1.03 below the get-in point when recent price is represented as "92.36".