Really important monthly close for USDJPYAs deflationary forces are taking over and bonds are rising, USDJPY is a key FX pair to be watching. Why? Because many players dumped Yen and their JGBs, as they expected higher and higher inflation and bond yields in the US. Now that US rates are coming down, JPY is becoming more attractive. Not only that, but JGBs are becoming more attractive as there is a smaller supply out there relative to a few months ago, while there are already lots of traders/funds who have been betting that the Japanese bond market would collapse. As deflation is coming back and Japan really has all the characteristics of a deflationary economy, buying some JGBs and Yen wouldn't be a bad idea.
USDJPY swept a major high a few days ago, and then it swept it again today. A second failure and a monthly / quarterly close below that high, could be a major sign that more downside could follow in the short term. In the long term I am fairly certain that the USD will appreciate a lot more than the JPY for multiple reasons, therefore this is just a short term play. Anything from 131 and down to 125 is possible for USDJPY in Q3-Q4 2022, especially when the Fed is forced to reverse course and cut rates & resume QE.
For quite some time I believe that CPI prints will be negative MoM. I also believe that the 2022 CPI print will be 4%, and that next June the YoY print will be 0 or negative. All that in the US of course, and of course I could be wrong. We could also see deflationary pressures take place and the USD rise against most currencies during that deflationary period / episode. Maybe we have a major crash at some point, one that would lead the Fed to take action once again, something that could send the dollar a lot lower.
In case the market continues higher, and closes this week and next week above 135.7, then it is safe to assume that we'll be going higher regardless of the macro environment. Japan is lacking energy and food production, while it has worse demographics and debt that the US. Therefore it is very hard to see how the Yen doesn't depreciate against the US dollar. This means that every dip below in the 125-131 region is an opportunity to go long.
