At the time of writting USD/JPY is trading at 88.06 after having tested 86 in the past few days. There is a general concern of yen stregnthening further but I would place my bets other way round.
My recommendation is to but USD/JPY in two tranches. first one now at 88 and again if it drops around 86. There should be a quick bounce back to 90 giving around a 3 – 5 % gain.
Over the next 3 months USD/JPY should make a move towards 93-95 range.
The USD JPY chart below shows that the pair is trading near its 2 years lows. From a pure technical perspective this is a reason good enough to initiate long position.
From the fundamental perspective the risk of inflation has started to look very real in next few months. The central banks would have to increase interest rates in the coming months. The trend has already staretd in the Asian economies.
With Fed tightening the interest rates the carry trade between USD and JPY will be back in vogue. One can argue that Japan can increase the interest rates as well – but seeing the latest GDP and export numbers, Japan has every incentive for a weaker currency.
It is very difficult to say if the pair would return back to the 120 – 123 mark in near future but a good 10% upside from the current levels of 88 is what I am expecting.
Update – 15 Dec 2009
The USD/JPY achieved the first target of 90.00. People can hold position for the longer term. Over the next 6 months period it would not be surprising to see USD/JPY flirt with the 98 – 101 levels.
UPDATE: 4th Jan 2010
The Pair has touched 93 and the next target is now 96 and then 98. Though i must say I was not expecting the move to be this quick. I would reduce half of my position at 95 and look to buy again if it drops to 90 -91 range