USD/JPY: A Good Buy?

The first two trading days of 2011 has been very kind to USD/JPY. After falling for 2 weeks straight, USD/JPY has finally found a bottom. According to my 2011 Dollar outlook, improvements in U.S. data should help the dollar recover in the beginning of the year. So far, we have seen some nice upside surprises and Friday’s non-farm payrolls report is expected to be very strong. I do not believe that the dollar will be in a long term uptrend this year, but I do believe that the first few months will be kind to the beleaguered currency.

I can’t take credit for this chart – my buddy at Nomura sent over this chart of USD/JPY in relation to US yields. The white line is the USD/JPY spot rate, the yellow line is the 5 year US-JPN yield spread and the orange line is the 2 year US-JPN yield spread. As you can see, there is a strong relationship between these instruments and the lines do not usually diverge significantly. However that changed in December, when USD/JPY fell steeply DESPITE a rise in the yield spread. What this chart suggests that USD/JPY ought to be trading at 86 and not 82.

About Kathy Lien 235 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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