A yen for your thoughts

Japaneses Yen ('JPY') has been dropping since December last year. From the chart below, we can see that JPY is now testing its 3 years old uptrend line, with support at 105. Meanwhile a Head-&-Shoulders pattern has formed, with the neckline support at 105. A break below the 105 level is not just a breakdown of uptrend line, but also a breakdown of the most reliable reversal pattern. The latter (if it happens) would mean that JPY would enter into a downtrend.

The drop in JPY could be a reaction to the fear of a Japanese debt crisis. As noted in a recent Financial Times article: "The ratio of Japan’s gross government debt to GDP has breached two hundred per cent. A Godzilla-sized rollover of Y210,000bn – equivalent to the entire public debt of Italy – will take place over the next twelve months. Challenging arithmetic, to say the least".

Pundits' prediction of a looming Japanese debt crisis have already set off brief spasms of selling in Japan's government bonds. In January, Standard & Poor's warned that it might downgrade the country's sovereign debt rating to levels below those of Chile. In February, Moody's also threatened to cut its view on Japan if the country fails to put together a convincing plan for debt reduction.

Can JPY survive the current selloff? We will have to wait & see.


Chart: JPY's daily chart as at Apr 6, 2010 (Source: Stockcharts.com)