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Yen… parity around the corner?

FXstreet.com (Barcelona) - The Japanese yen continues to weaken, resuming the needle-like upside in USD/JPY after the breather during March, easing from the area of 96.90 to the vicinity of 92.90. The break-even point was the last BoJ meeting last Thursday, where the new BoJ Governor H.Kuroda announced his QQE (Quantitative and Qualitative Easing) programme, an aggressive stimulus package aimed at quelling the entrenched deflation that has been hammering the country for the last couple of decades. The main challenge not only Kuroda but also the Government is facing would be to ignite the inflation expectations amongst the economic agents. In this regard, the BoJ has set a new inflation target of 2.0%, which ambitiously expect to achieve within the next two years.

… Credibility only matters

So far, the massive wave of cheap liquidity that keeps on flooding the global markets have served well to risk-associated assets and high-beta currencies, in particular those ones sharing the same geographic region. Extending the horizon further, the euphoria is currently involving the euro and the sterling, posting fresh highs despite the horrible economic fundamentals lying beneath them. Furthermore, the trend is posed to continue as long as the Japanese investors run away from domestic assets in search for higher yields overseas.

All in all, it seems that Kuroda’s initiative is doing just fine at the moment, although Government officials and politicians have already voiced their concerns, mainly and curiously regarding future inflationary pressures once and if the yen dips to lows beyond the magic triple-digit figure.

When comes to technicals, Karen Jones, Head of FICC Technical Analysis at Commerzbank, suggests, “We target 101.27/67 (the 1999 and 2005 lows). This is expected to hold the initial test. Should this be cleared this will see a target of 105.50 engage, this is the 61.8% retracement of the move down from the 2007 peak”.

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