USD/JPY Targeting 124

USD/JPY Targeting 124

USD/JPY Targeting 124

Fundamentals

We feel that it should only be a matter of time before USD/JPY reaches 124. As we head into the New Year, the dollar’s bull run is far from over. It is no secret that the Federal Reserve will begin raising interest rates next year and at some point, U.S. yields will begin to rise in a meaningful manner. When this occurs, it would provide the perfect backdrop for a stronger dollar rally. At the same time, fiscal and monetary policy in Japan will remain extremely accommodative, putting pressure on the Japanese Yen. Over the weekend Prime Minister Abe’s Cabinet approved a JPY3.5 trillion supplemental budget. While this spending program had been in the works for months, coming off the heels of disappointing Japanese data, it only serves to highlight the country’s need for additional stimulus in the face of slowing Chinese growth. In the coming year, U.S. and Japanese monetary policy will drift further apart, pushing USD/JPY to fresh 5 year highs.

Technicals

Taking a look at the monthly chart of USD/JPY, the current 5 year high of 121.85 is the main near resistance level for USD/JPY. If and when this level is broken, the next stop for USD/JPY should be the 2007 high of 124.15. Near term support is at 120 but as long as USD/JPY holds above 116, the uptrend is intact.

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