In recent days the technical picture on USDJPY had looked more promising (bullish outside week 2 weeks ago) suggesting a higher squeeze could be seen in USDJPY as well as JPY crosses.
Mea Culpa as I got sucked into thinking that could stretch things even higher as yields stabilised and equities moved higher also.
I now think that view is wrong
The political developments in Japan were a wakeup call in that respect. Not the developments themselves, so much as the outsized reaction to them which serves to reaffirm how fragile Japanese markets remain.
Even yesterday to be honest I was still inclined to think that this short-term positive development may be intact. But as I finished my Diary piece Diary-Week 61: Increasingly Complicated it struck me that I was engaging in exactly the same complacency that I was arguing should be avoided.
Japan is still in danger of making the same policy mistake as in 1990 (raising rates as the Fed lowered them) and the reality is that USDJPY still trades very closely to that period.
Similarly, EURJPY also got close to good levels around 163.90-164.30 and reversed sharply as did GBPJPY after a good break higher. All 3 pairs posted very aggressive bearish outside days on Friday.
And then there is the NIKKEI
The initial fall from above 40k was very similar to 1990 but recovery bounce has clearly been larger
But how does it look now?
The sharp multiweek bounce seen did marginally overcome the 76.4% pullback level BUT...on Friday's news we saw the Nikkei futures (post Japan close) collapse over 6% and we have also seen a deterioration in the middle-east geopolitics as well as elevated Russia-Ukraine tensions.
All of this makes it hard to see the positive dynamic for USDJPY sustaining even If US yields hold up somewhat. In all honesty it feels like another tumultuous Sunday night could potentially materialise.
And the reality is that the present relative yield dynamics are far from supporting the present level of USDJPY
So bottom line...I repeat... "Mea Culpa". I need to separate the "Wood From The Trees" and when we do that, the 1990 dynamic of a much lower USDJPY and Nikkei still looks like the roadmap to follow.
