With Japan’s Nikkei index reaching a record high and the world economy faltering and the Japanese Yen still on a strong upward path, many traders are asking whether the USD/JPY is set to reverse its trend? I believe so and I will give you a few reasons as to why.
First of all, a strong yen can help bring down the value of the Japanese Dollar. The Japanese Yen has always been quite weak when compared to the US Dollar. In fact, this past August, it was the lowest on record for the dollar and a record for the yen as well. Since then, the Japanese Yen has started to rise again, but with the current rally continues, it is now up over 40% against the US dollar.
This is why many traders are starting to worry about the future of the Japanese Dollar in relation to the Euro, the US Dollar and other currencies. They are also concerned about how the rally in the yen will affect the value of the USD, particularly as it comes close to being at a new record high.
To be perfectly honest, it does not matter which currency you are trading against – it really does not matter when it comes to what the Japanese Yen is doing. What matters is whether or not it is going to continue on the upward swing and if the rally in the Japanese Yen is going to last.
So why should traders be concerned about the Japanese Yen at this time? Well, I believe it is because the Japanese Yen is one of the weaker major currencies in terms of strength (as we’ve seen in the last several years) and also because the recent increase in the strength of the dollar could have an effect on some major economies.
One country that is very much in danger of being affected by the weakness of the USD is the European Union. Many European nations have been hit very badly recently and they are finding it difficult to catch up with the strong dollar. Therefore, the euro might find itself stuck to the bottom of a downtrend or even suffer some major losses, especially after a brief rally in the Japanese Yen.
In addition, since many people fear that the European Union is not going to be able to keep up with the economic recovery in the US, this means that it could suffer a major hit in terms of the strength. if there is no movement in the Euro against the US Dollar. Of course, a weakness in the Euro could also mean that the euro could see a break down or at the very least be seen as a bargain to some.
Now this is just my two cents, but I think the Japanese Yen is going to be very interesting as the USD/JPY is expected to reverse its trend and see it start to move back towards a stronger state. The question remains whether it is going to go up too far. Indeed, there will be other factors that could come into play as well – as there have been for the last few years and I would recommend that you do your own research.
However, as I alluded to above, a weakness in the Japanese Yen could mean that some major economies could be hit hard. In Japan for example, the Bank of Japan is looking to use interest rates to bring down the value of the Yen and to try and prevent it from having an impact on the global market. Therefore, if the Japanese Yen was to fall too low and stay there for a long period of time, the Bank of Japan could take steps to protect the value of the Yen and the economy in general.
However, many people believe that Japan has already done this and that it would do it again in the future. Of course, there may also be some short term political reasons to be worried about – but those are not as big a deal as you might think. What is going to happen is that the strength of the Japanese Yen is being propped up by the Federal Reserve, which could go up and down – or move up and down a little bit, or stay relatively stable.
If the trend continues to hold up, then the Japanese Yen could end up as a strong major currency with a low-priced price in the future. However, you can expect that there are going to be a number of reasons to watch in the future as to how this process plays out.