Technical analysis of a 4-hour time frame chart spanning 6 months for the USD/JPY (US Dollar vs Japanese Yen) shows the pair attempting a bullish reversal from its bottom @ 105.546. Thus far, it has almost completed a 23.6% retracement near 109.84. A traditional 38.2% retracement takes it to @ 112.50, while 50% and 61.8% retracements would respectively push it up to levels @ 114.65 and @ 116.80. Resistance points are near $109.55, $110.70,  $112 and support can be found around $108.15 and $107.60. (See chart analysis below.)

Despite the recent rally in the USD/JPY, it still trades within a bearish channel and buttresses resistance at the upper trendline. Typically, there is a pullback at this juncture and resumption of the downtrend. However, as news of further monetary stimulus in June or July by the BOJ continues to circulate, more shorts could start to cover. If you didn’t get the memo, then consider this post a PSA (public service announcement). Japan’s Finance Minister, Taro Aso, has repeatedly stated that Japan will intervene to “curb any one-sided gains”.

Taro Aso: “Sudden yen strength or weakness has various impacts on trade, economic and fiscal policies and Japan’s stance is that this isn’t desirable… It’s natural that Japan has means to intervene.”

Don’t worry. You still have time as Japan is hosting a G7 meeting this month and intervention action on its part before or during this would be considered bad form. However, make no mistake about it. The existing strength of the Yen is unsustainable as Japan is an export based economy. It’s largest export trading partners are: USA (20%), China (18%), South Korea (7%) and Taiwan (6%), all of whom are experiencing contracting GDP growth rates as well. The Yen appreciation only exacerbates the situation.

Continued jawboning (which is what it is for now since Japan has not intervened in the foreign exchange markets since 2011 and is currently on a list of nations monitored by the US for currency manipulation) by the BOJ or evidence of persistent economic weakness may be just the tipping point for shorts to take profits or minimize upside risk exposure. Monitor this important bearish channel, which has persisted for several months. A bullish breakout above its upper resistance line would signal a major change in market sentiment and bullish trading opportunity.