USD/JPY today was around 88.445 in U.S. market, very close to the level in December 2008-January 2009 and November-December 2010. Japan has a serious deflation risk, but the central bank seemed to have no idea how to bring inflation back to their economy. The interest rate is already zero and the government debt ratio is among the highest in the OECD countries. Instead of running away from Japan, everyone seems to think Japan is the safe place to park the money when the rest of world is in crisis. So YEN is usually up during the interesting time. When time is good, carry trade tends to drive down the value of YEN.
So when YEN is approaching the highest level in the past two years, the question is obvious: why? What uncertainty do those capital see when they move their money to the safe box in Japan? The fact that Toyota has just been grilled in U.S. does not seem to bother the market. Greece just announced a further big fiscal cut: EUD 6.5 billion reportedly. U.S. economic data looks good, and the equity markets have basically been in the upward trend sine February. China is now in its annual legislative session, where there should be few surprises.
Or maybe there are deeper reasons to be worried. As I said yesterday, PIGS need billions of money in the next two months, which means that the new cut today in Greece might not be remotely enough. In U.S., the job data for February will be released on Friday. Given the bad weather, maybe market is pricing in a big negative number. And China, there might be more tightening in the pipeline.
One way to play YEN is if everybody is expecting a bad job data for February, then the upside shock is more likely to move the market. YEN has a large potential to go down. My opinion is that it should not be at the current level.
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