The dollar/yen traded with a 90 handle today its highest level since June 2010. Probably the most popular macro trade of 2013, the move has been supercharged by the country’s deteriorating balance of trade and expectations the Bank of Japan (BoJ) steps up quanto easing next week. The Economist noted last January,
In the 1980s and 1990s, Japan’s huge trade surplus was a popular target for American and European protectionists. No longer. Provisional estimates suggest that Japan’s merchandise trade moved into the red in 2011—its first annual deficit (excluding freight costs) since 1963. Japan remains the world’s biggest net foreign creditor. Income from its assets more than offset the trade gap, keeping its current account in surplus, equivalent to about 2% of GDP (down from 5% in 2007, see chart). That surplus, however, could also disappear within a few years.
Recall dollar/yen appreciated over 50 percent from April 1995 to April 1997. Some believe that move was one of the factors contributing to the 1997 Asian Financial Crisis.
Though extended and very crowded with “sell the news” risk going into next week’s Bank of Japan meeting, the corrections have been to brief allow longs an entry point. Looks like nothing stands in the way of a move to 95.
(click here if charts are not observable)