While the market can stay irrational more than one can stay solvent, the Japanese situation seems to be unraveling as irrational markets fade away and fundamentals prevail. In recent news and market action, Japanese government borrowing rates have surged before and after market limit-ups. Additionally the USD/JPY currency pair broke out of a consolidating pattern to the upside. And finally other Asian countries have started to pursue an easing policy.

The chart below displays USD/JPY. Some may theorize that when there is a halt in JGB trading, investors turn to the currency market as a proxy to do their JGB selling. The idea behind this trade is that should the Japanese government pursue any more unconventional policy, investors will want US dollar as opposed to Yen (especially if they devalue).

The USD/JPY saw resistance at 100 for just about a month, now this level should provide solid support, but calling for a massive tide change can be dangerous.

salerno.mark.a@gmail.com 

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