The problem being that what is good for one country may not be in the best interests of its trading partner and hence why the G20 is finding it a tall order to come to any kind of agreement on trade imbalances and currency exchange rates. Unsurprising when such a complex set of economies, entwined and entangled, all have a self interest to sustain their own economic health.
Artificial devaluation of currencies is a particularly hot topic. An astute example being the United States fiercely contending that China has undervalued its currency in order to give China an unfair export advantage. The United States however is being accused of the same thing by China as Quantative Easing and easy money policies that the United States have adopted have the same effect; weakening the dollar and hence boosting exports; a feat surely welcomed by an administration that is finding its popularity consistently in question.
The fact of the matter is that any agreements made will be a long drawn out process and either one of two things will happen: Either by the time any agreements are made, the markets may have naturally solved some of the issues, or the economic conditions at a global or local level may change making the current discussions obsolete as different actions may need to be taken. For example the crises in Greece that forced the Greek government to radically change policy.
Looking at the USD specifically in relation to the JPY, we can see that the USD has declined against the JPY since the financial crises started in 2007 which has not helped Japan’s exports in any sense. However, due to the fact that the USD/ JPY is almost at the lowest point the USD/ JPY has been since 1995 at 79.846, a purely technical rational may see buyers come in as any bear traders or traders waiting to buy at a bargain price do not have much else as a frame of reference.
This means that we could see the USD/ JPY rally. Due to the fact that the pair has been in a heavy down trend and if the move has indeed stopped, the price will most likely move into a consolidation pattern and so therefore traders may want to watch close key levels such as 84.76 and 90.50 to the upside This also depends on whether the Japanese government intends to interfere with the markets.
However, if 79.84 breaks, then from a purely technical point of view, the USD/ JPY will be looking for support in which case the Fibonacci movement can provide some indication of where buyers are most likely to come in, and so 78.35 which is at the 161.8 Fibonacci projection level is a likely key buying level.
It is doubtful that the bank of Japan is likely to let the USD depreciate against the JPY any further than this for the reasons discussed, however the next long term target down would be 67.66 at the 200% Fibonacci projection level. The currency pair is more likely to see buyers come in sooner rather than later, but these things can not ever be for certain.
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