Konnichiwa! As we head to the end of May, and Americans are fresh off a three-day Memorial Day holiday weekend, an interesting forex trading scenario is forming on the US dollar – Japanese Yen forex dance floor. Why is USD JPY breaking Ichimoku cloud? And what happens if it confirms? It is time to check with all points of the Invest Diva Diamond Analysis and build our USD/JPY trading strategy for June 2016.

USD JPY Breaking Ichimoku? Forex Trading Strategies | Mr. USA and Ms. Japanese Yen Dancing on the forex dance floor

1- Japan Economy

Regardless of our possible observation of USD JPY breaking Ichimoku, we still need to check the fundamentals behind the pair’s movements. Let’s first look at the Japanese economic situation.

  • Ms. Yen is no longer the strongest currency of 2016:  Ms. Japanese was able to capture the investors’ hearts in her pink Kimono an epic dance moves the first 5 months of the year. However they have started a new trend of dumping poor Ms. Yen in the past few days. From the looks of it, she could be getting dumped by many more investors in the days to come. recovery plan highly depends on a weak Yen.
  • Japan doesn’t like a strong Yen (for the most part): High demand for Ms. Japanese Yen breaks the heart of Japanese Prime Minister, Mr. Abe. Not because he is a crazy jealous boyfriend, but because high demand makes Ms. Yen stronger. And a strong Japanese Yen smashes exports and dampens inflation at a time when the country is trying to boost both.
  • Rumored Sales tax hike delay: With the above mentioned heart break, there are now rumors the Prime Minister Shinzo Abe wants to delay Japan’s sales tax hike. This is perhaps one of the biggest factors that triggered that sharp yen selloff. He is rumored to want to delay the sales tax hike originally scheduled in April 2017 all the way to October 2019. That’s two and a half years later than initially intended!
  • Delayed Sales Tax Hike Could Weaken JPY Because…: Under normal circumstances, a delay in sales tax hike wouldn’t weaken a country’s currency. However in Japan’s case, they are trying to get rid of a budget deficit. So while postponing an increase in consumption tax could actually allow domestic spending to stay strong for much longer, Abe’s leadership has been pushing for a return to a primary surplus by 2020 or risk downgrades from credit rating agencies. These contradiction is give Mr. Abe a ton of headache. And that could be one of the reason why investors don’t find Ms. Japanese a safe haven any more… at least for the time being.
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