CAD/JPY Forex Signal: Yen Weakens Amid Recovery  

Potential signal:

You can see that the Canadian dollar has rallied a bit during the trading session on Friday against the Japanese yen, and it looks like we are doing everything we can to really start to recover. Ultimately, if we can break above the 109 yen level, then I think we really start to take off to the outside reaching the 112 yen level.On the other hand, if we do pull back, then it would just be more of the same. But one thing that I cannot help but notice is that it looks like the Japanese yen is starting to weaken. I think what we’ve got is a situation where traders are starting to test the idea of whether or not the Bank of Japan can be as aggressive as they suggested. Quite frankly, they can’t.The Japanese economy is far too indebted to go crazy with monetary tightening. And I think this is the market saying, okay, time to call the bluff. The Japanese yen is losing strength against multiple currencies. And this started with a couple of weeks of sideways trading. With that being the case, I do think that people are going to head back to the carry trade because quite frankly, the selling has abated and now you get paid to hang on to this pair overnight. And that of course adds up over the longer term. That’s what you had seen for months previously.  The Japanese are Stuck Long-TermThe Bank of Japan entering the market and tightening their monetary policy means probably 10 basis points. I think the market is starting to come to grips with that and that is not a huge difference. If they go too much tighter, the Japanese economy could crumble. So, they can only do so much and longer term, it’s very likely that the Japanese yen finds itself on the back foot yet again. In that scenario, the markets will start chasing the carry trade yet again.More By This Author:Pairs In Focus – Sunday, Sept. 1GBP/USD Forecast: Pullback To 1.31 LikelyNatural Gas Forecast: Looking Sideways