How low can the USDJPY go?

John Hardy, Head of FX Strategy at Saxo Bank, takes a look the plunging USDJPY, as investors flee Japanese stocks and the BoJ’s failure to contain yen raises doubts on stimulus efficacy.


USDJPY punched down through 116.00 in early US hours yesterday as US equities followed up the ugly European session with heavy selling in early trading.

John Hardy, Saxo Bank

John Hardy, Saxo Bank

The close in New York yesterday tried to offer a glimmer of hope as the major US indices finished well off their lows for the day (which were within a few points of the lows for the cycle back in late January), but the USDJPY break had Japan in a sour mood, and with most of the rest of Asia closed for the New Year holiday, a tumbling Nikkei due to JPY strength set the tone for the Asian session.

Let’s remember that even the shock move into negative rates territory by the Bank of Japan has been entirely unable to exercise any lasting effect on weakening the JPY exchange rates and this should be preventing the central banks from pondering a round of currency wars driven by a “race to the bottom” for the most negative interest rate.

Overnight, a weak round of verbal intervention from Japanese finance minister Aso saw little reaction, while the European Central Bank’s Coeure spoke late yesterday of currencies being on the agenda of the upcoming G20 meeting, though things probably aren’t quite desperate enough yet to see any new agreement emerge from the unwieldy group.

Today is all about the long wait until Fed chair Janet Yellen’s testimony tomorrow – she will, of course, have to offer a nod to recent developments, but will it be enough to shore up confidence or is the risk here the growing theme of central bank impotence in the wake of the forces that are coursing through global markets? It is clearly a high bar to clear for the Fed.

USDJPY chart Saxo Bank

The USDJPY has bounced well of its Asian session lows as Europe tries start things off with some semblance of a rally, but we’ve just suffered a break of the huge 116.00 area which must be re-attained and then some to suggest a false break.

Meanwhile, if we suffer a large extension of the negative environment we have seen since the beginning of the year, we can warm up targets like the head-and-shoulders target (100% of the height of the head to the neckline) and the 38.2% retracement of the entire rally from the 2011 lows, both of which interestingly come in within a few pips of each other in the 106.50 area.

More of John Hardy’s research can be seen at

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