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Long term JPY views

Long term JPY views

Fri, Jun 9 2006, 10:47 GMT
by Nicole Elliott

Mizuho Corporate Bank

Long term Outlook for MXN/JPY

Comment: A difficult Technical picture where over the last ten years the Japanese yen has traded between 9.000 and 16.000 to the Mexican peso, the mean being 12.450. Therefore the decline ahead of here since December is a) not a surprise and b) seen as a corrective move lower which should in theory start trying to base ahead of the psychological 10.000 level. However, April’s monthly close below 10.500 suggests there are some serious problems linked to the peso (Presidential elections on the 2nd July?) and therefore we shall have to allow for a very scary downside probe towards 9.000 before an equally dramatic reversal higher. By the end of 2006 it should be back up at 11.500/12.000, while during 2007 we expect a steady rally to 13.000.

A monthly close below 9.000 forces a major re-think.

Long term Outlook for AUD/JPY

Comment: Like so many Yen crosses, the Japanese unit is expected to continue to depreciate against the Australian dollar over the next eighteen months. For the last five months it has struggled below decent resistance around 90.00, and may do so for another five months or so. Allow for sharp swings between here and 82.00 (and ‘spikes’ no lower than 78.00). A monthly close above 89.00 confirms that the next big leg up has started, one which should make up for time wasted, and targets the 1997 high and psychological 100.00 around the end of 2006. Then more very lengthy consolidation between 95.00 and 108.00 for most of 2007.

A monthly close well below 80.00 forces us to review.

Long term Outlook for CAD/JPY

Comment: The very long term trend, which started in 1995, is for the Yen to weaken against the Canadian dollar. The move accelerated last year and is expected to do so again this year. By the end of Q4 2006 it should have broken above the psychological 110.00 point and be trading closer to 120.00 where fairly lengthy consolidation is likely. In H2 2007 we favour another squeeze up to 125.00 but please note that it may overshoot dramatically to the 1990 high at 137.00 if enough momentum builds.

A monthly close below 90.00 would force us to re-think.

Long term Outlook for JPY

Comment: Our view for this year has not changed: December’s high at 121.40 is an important interim top and, in stages, $/Yen will trade lower. Our target for the end of Q2 2006 is 109.00, with a drop to 107.00 before then highly likely if generalised US dollar selling dominates as we think. Then consolidation in Q3, probably between 107.00 and 115.00, followed by another drop in Q4 to 105.00 and yet more consolidation. Next year becomes a lot more difficult. Once again we expect generalised US dollar selling but, depending on how frenzied this is late this year, follow-through might be limited. Also, the closer we get to 100.00, serious intervention is highly likely. Nevertheless a drop below this important psychological level must be allowed for, to 95.00 and probably no lower than 85.00. Note that the all-time low was 79.70 (April 1995).

A weekly close well above 115.55 postpones all the above but only above 121.50 would we have to review.

• Long term Outlook for MXN/JPY
• Long term Outlook for AUD/JPY
• Long term Outlook for CAD/JPY
• Long term Outlook for JPY

Published on  Fri, Jun 9 2006, 11:09 GMT

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Mizuho Corporate Bank  | 1-3-3, Marunouchi, Chiyoda-ku, Tokyo 100-8210
http://www.mizuho-cb.co.uk | Nicole.Elliot@mhcb.co.uk