Here’s Why I’m Still Long the Dollar/Yen by Samuel Rae

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New SBM contributor, Samuel Rae, is the author of the bestselling book Diary of a Currency Trader.

Take one look at a dollar/yen chart and it is impossible for you to miss the sharp upside move we’ve seen over the past month or so. Having traded within a relatively tight range for the last five or six months, USD/JPY has given us what will likely turn out to be one of the sharpest, most volatile moves of the year across any of the majors.

For the non-breakout traders whose strategy failed to signal a long entry around 103, it may feel as if they’ve missed an opportunity. Alas, all is not lost. I believe there may still be considerable upside in the pair as we head into the latter quarter of 2014 and beyond.

Here’s what I’m looking at, and why I think we could be trading upwards of 110 before December.

Source: xe.com

In short, it all comes down to what has been a staple of the Japanese economy for the past 20 to 30 years – deflated consumer activity. Japan has lived under the threat of deflation and stagflation for the past two decades, and  when Shinzo Abe implemented his three arrows policy back in December 2012 many believed such a threat had been lifted.

Indeed, we saw something of a resurgence in many of the key areas of the Japanese economy throughout 2013 and during the first few months of this year. Then, however, Abe made a mistake. The Japanese economy is ageing at a faster rate than the vast majority of the developed nations. Japanese people are living longer and having fewer children than ever before, and, as a result, there’s been stark concern over the nation’s ability to meet its social security bill in recent years….

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