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The USD/JPY pair fell during the Friday session to pierce the 79 handle. This level has been supportive in the past, and Friday's action was no different. The area has been supportive over the last couple of weeks, and we feel that perhaps it is where the Bank of Japan is clandestinely getting involved. They have admitted to being involved in this pair silently in the past, and we do know that just below here at the 78 level they have been openly active.
The small hammer that was formed for the Friday session does suggest that perhaps we are going to bounce to retest the 80 level. There's an obvious resistance area at 80, so we don't necessarily expect this pair breakout at this point. Nonetheless, if we can get above the 80.60 level, then we would have a serious break out that would get a lot of short covering involved. If this were to happen, we would expect this pair to run to the 84 handle before was all said and done.
The Bank of Japan of course has been working vehemently against the value of the Yen, and as a result they are supporting this market through various means. The real question at this point in time is going to revolve around the Federal Reserve and what it chooses to do involving monetary easing. While they did suggest in the last minutes released that there were things they can do, they didn't explicitly say that they were getting ready to ease and the markets took this as a hint that maybe they won't.
We feel that eventually this pair does breakout to the upside, as the Federal Reserve certainly is much closer to raising rates than the Bank of Japan. Once this happens, this pair should be a long-term buy-and-hold, but right now the best we can hope for is the Federal Reserve simply doing nothing. We know that the Bank of Japan will do something, so of course this will push the pair higher.
Alternately, if we see a breakdown at this point we suspect that the 78 handle will be where the Bank of Japan gets a little more aggressive. On a supportive candle near that level, we would not hesitate to buy this pair.