• The greenback continues to levitate against the Japanese yen as we head towards a Bank of Japan meeting during the early hours on Friday.
• Ultimately, the Japanese find themselves with a massive amount of debt that they must deal with and therefore the BoJ has no real shot of raising interest rates.
• They may try to jawbone down the US dollar against the Japanese yen, well with interest rates in the United States stubbornly high, it does make sense that we will continue to see traders choose to hang on to the US dollar, as it pays you to hang on to this position over the longer term.

(Click on image to enlarge) 

Interest rate differential continues to drive currency pair

As the pair approaches the 157 yen region, it is crucial to understand that we may get a little bit of volatility right around the time that the press conference starts, but at the end of the day the Japanese have some of the highest debt load in the world and therefore cannot handle higher interest rates. The Japanese economy has started its death spiral as population shrinkage is finally catching up with the debt load that the Japanese picked up in the 1980s. Altered loose monetary policy will continue to be a major issue with the Japanese currency and all things Japanese related.

Because of this, just about any currency I can think of has gained against the Japanese yen over the course of the last couple of years, including the lowly Swiss franc. Even the Swiss franc pays interest against the Japanese yen, and now it looks like the market will be paying close attention to the ¥160.00 level where the Bank of Japan intervened several weeks ago. There is not much out there right now to keep the market from overwhelming the Japanese, and I do believe it is only a matter of time before we break through that area. Because of this, i remain long of this USD/JPY pair and will buy into any dip that we get. I have no interest in owning the Japanese yen, nor am I willing to pay the swap at the end of every trading session for the privilege.

More By This Author: