With the European Union debt deal talks and the US primaries under way, there is little space left for news regarding the second biggest debtor country: Japan. The ugliness contest between the dollar and the euro, seized the news and took the limelight away from the real contestant: the Japanese yen. In the last months the Japanese currency has been slowly appreciating in value against the dollar from 81.11Yen to what is now 76.36Yen. Bank of Japan is most probably going to intervene in the market again, and then traders will be able to fade the intervention again, locking in profits on both ways.
Nippon Ministry of Finance implied today that the public debt of one of the most indebted countries (public debt stands at twice the gross domestic products, a very elitist club) could actually grow in the following years, even with the fiscal tightening caused by the planned doubling of sales tax from 5% to 10%. The planned issuance of new debt instruments is Y44,244 trillion for 2012. In the same year the planned budgetary deficit is Y22.3 trillion.
By having such a large public debt, the Japanese authorities are unlikely to let go of the fight for a depreciating yet. And taking into consideration that the exports will be hurt by a strong yen, which would further slump the economy, I would be on the lookout by another massive intervention from the Bank of Japan. Of course the intervention will be of little effects and the downward trend in USD/JPY will soon be back.
I am going long USD/JPY at 76.26 with a wide stop loss at 74.85.