11-10-2018: December Japanese Yen: Japan's Economy Looks Weak

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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One thing we think we have noted about foreign currency exchange rates is that they tend to move in very long-period trends in one direction. If that applies to the Japanese Yen, despite occasional upward blips, the obvious long-term trend continues to be down on a weak Japanese economy, low (negative) interest rates there, and trade war concerns.

Intermarket Analysis

We fed the Japanese Yen, Canadian Dollar, and Mexican Peso into a neural network to get the following result:

Parabolic Chart

December Japanese Yen:

Parabolic Chart

Nirvana Chart

December Japanese Yen:

Initial Chart

News Analysis

Discouraging Japanese machine orders fell by the most ever recorded in the month of September. This appears to be a catalyst to send the Yen back to previous lows pinning it down. The Fedeeral Reserve has raised U.S. interest rates three times so far this year making the U.S. Dollar more attractive for investors. There is a substantial prospect of further Fed tightening. But the latest Fed meeting decided to hold rates at their present level. The Bank of Japan is expected to press on with its ultra loose monetary policy because of low growth and inflation. A widening interest rate differential between U.S. and Japanese bonds has made the Dollar a more attactive bet than the yen.

Some analysts see domestic consumption in Japan rising and lifting growth, which could be sufficient to lift the Yen against major currencies. Japan has posted the fastest growth since 2016 in the second quarter of 2018. But the effects of Typhoon Jebi, as well as contagion from the U.S. - China trade war has placed downward pressure on the yen. The Japanese central bank has continued to keep its short-term interest rate at -0.1%, as well as lower-than-expected inflation forcing the central bank to keep rates low for the foreseeable future. (Japan has negative interest rates.)

The U.S. midterm elections ended without what would be considered a negative suprise for the U.S. Dollar Index. Investors' risk appetite is growing now that the U.S. elections are over. But despite a surge in stock prices, the Dollar's rise was considered limited. The Dollar is unlikelyi to strengthen against the yen one-sidedly, because it is unclear whether the administration of U.S. President Trump will move for reconciliation with the Democrats after the midterm elections resulted in a divided Congress.

Nissan Motors recently logged a 10.9% drop in net profit for the six months to September owing to a decline in global sales and rising materials costs. Toshiba Corporation announced a five year business reform plan to revamp its operations, with 7,000 global job cuts, a withdrawal from its nuclear plant construction business in Britain, and a sell-off of a U.S. liwquefied natural gas operation. The planned reconstruction comes after a sharp turnaround showing net profits after a previous loss a year earlier, as it completed the sale of its chip industry.

Tokyo stocks have rebounded sharply after a post-election rally on Wall Street.

U.S. jobs data continues to support the U.S. Dollar against other currencies. Still, investors seek clarity from U.S. elections. The Dollar continued to surge higher after election results came in.

Most economic data from Japan is weak. Industrial production dropped 1.1% in the past month. Housing starts slipped 1.5%. Consumer confidence fell short of estimates at 43.0 points. Japanese 10-year bond yields are near zero. The Bank of Japan reiterated that inflation levels would not reach 2% before March, 2021. There are currently more downside risks to the Japanese economy than upside ones. The tariff war between the U.S. and China, and impasse over Brexit negotiations, are both impacting the Japanese Yen exchange rate negatively.

Our assessment is that BOJ officials keep talking down the Yen and emphasizing "risks" so that any sort of intervention in markets seems unlikely.

Point & Figure Chart

108.0|                                                                  T 11/ 7
     | IMM - Dec-18 Japanese Yen, 12.5 m yen, c/y  Cm.=0.03  Lim.= 0.3
     |                           X
     |                           X
     |                           X X   X
     |                           X XO  XO  XO
     |                           XOXO  XOX XO
     |                           XOXO  XOXOXO  X
     |                           XO O  XOXOXO  XO
     |                         X X  O  XO   OX XO
     |                         XOX  OX X    OXOXO
     |                         XOX  OXOX    OXOXO
     |                         XOX  OXOX    O O O
     |                       XOX    OX          O
     |                       XOX    O           O
     |                       XOX                O                X
     |                     X XOX                O                XO
     |                     XOXOX                O                XO
     |                     XOXOX                O            X   XO
     |                     XOXOX                O        X   XO  XO
     |               X X X XO O                 O        XOX XO  XO
     |               XOXOXOX                    O        XOXOXO  XOXO
     |               XOXOXO                     O        XOXOXO  XOXO
     |               XO O                       O    X X XOXOXO  XO O
     |               X                          OX X XOXOXOXOXOX X  OX
     | XOX           X                          OXOXOXO OXO OXOXOX  OXO
     | XOXO    X   X X                          OXO O   O   O OXO   O OX
     | XOXO    XO  XOX                          OX            O       OX
     |OXOXO    XO  XOX                          OX                    OX
     |OXO OXO  XOXOXOX                          OX
     |OX  OXO  XOXOXOX                          O
     |O   O OX XO OXOX
     |      OXOX  OXO
     |      OXOX  OX
     |      OXOX  O
     |      O O
      111         11                        11111              11      1
The above chart is giving a conventional sell signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal up period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Thrust". It is giving a sell signal.

Internal Printout 1

Results of "Thrust" for Japanese Yen (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1.250. Initial margin on a single contract is $2,200. Use of options is advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.-->

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent near a volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Japanese Yen March 865 Put and Sell (1) Japanese Yen March 875 Put @ 33 to the sell side or greater.

o 1 o 2 o 5

o 3

o 4

Calendar Spread

What the Jan. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -1.30 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.50 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be closer to the buy the near, sell the far point.

Level Table:

Level Table

The path of least resistance is down.
 98.0|                                                                  T 11/ 7
 IMM - Dec-18 Japanese Yen, 12.5 m yen, c/y  Cm.=0.03  Lim.= 0.3
     |XXXXXX[[   <<<
 87.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.229
       1 1 1 1                                       1 1 1           1
       1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 6 7 7 8 8 9 9 0 0 1           1
       0 2 0 2 0 2 0 2 0 2 0 1 0 1 0 1 2 1 3 1 2 1 2 0 2 0           0
       9 2 7 1 8 3 6 1 7 1 5 9 3 7 1 5 9 6 0 3 7 1 5 9 3 6           7

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 7/11 ).

Intraday Chart

                 Risk Versus Opportunity Report

                JYZ8    December Japanese Yen

                      High Price:  89.31
                   Current Price:  88.47
                       Low Price:  86.79

                            Risk: -0.019
                     Opportunity: -0.038

                    (O/R) Ratio =  2.000

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart - 1
Nirvana Chart - 1
News - 1
Point & Figure - 1
Cyclicals - 1
Seasonals + 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total - 6
Place 6 December Japanese Yen on a Sell Watch with stoploss @ +1.03 above the get-in point when recent price is represented as "88.47".