The Japanese Yen is playing an important role in markets. Reading the chart of the Yen is hard, because of its volatile pattern, but it is a mandatory task when “reading markets.” In doing so, one should not focus too much on the short term, but the long term chart. That is why we focus on the Yen’s multi-decade chart in this article.
The purple lines on the chart represent secular trendlines. They connect major tops and bottoms.
The most important observation is that the Yen tested multi-decade support in 2015, and started a sharp rally as global stock and commodity markets started to sell off. It does not really matter what the sequence was, the point is that 2015 was setting up to become an extraordinary year.
In recent weeks, the Yen reached another very important area, which is around 93 points. As seen, a trendline connects the major 1995 top with some intermediate bottoms in recent years.
Note on the chart the range between 80 and 93 points. The rally from 80 to 93 points has come with a global market sell off, but above 93 points there is huge upside potential, without any resistance, until the 115 area. Note: that is most likely not good news for global markets.
That said, what should investors look for? If the Japanese Yen continues to rise, we know for sure that it will bring turmoil. The key question is: in which market exactly, and how much? That is very hard to forecast, it is a matter of closely monitoring the trends that are developing. In other words, the Yen has the tendency to strengthen trends. In other words, new trends tend to become stronger with a rising Yen.
The caveat is that there is not necessarily a correlation with a trending Yen, which makes things not always obvious. That is why we emphasized the word “strong” in the previous paragraph. If there is no correlation, then one should not look for any.
In today’s markets, we see that global stocks arrived at a critical resistance area. If the Yen would continue to rise (sharply) with declining stock markets, then 2016 could become a very nasty years for stock markets. Watch the Yen and stocks closely.