By Vadim Pokhlebkin
You may have heard that this week, the Japanese yen hit a 13-year high against the U.S. dollar. As The Financial Times put it in a December 17 article,
The yen appreciated to its strongest level against the dollar in 13 years as the US Federal Reserve unexpectedly cut interest rates from 1 per cent to a range of 0 to 0.25 per cent. The yen’s reached Y88.24 to the dollar by mid-afternoon in Tokyo. [Y87.15 on Dec. 17 – Ed.] The currency has gained more than a quarter in value against the dollar so far this year.
To currency traders, this pair is known as the USD/JPY. So, why is the yen gaining? Apparently, "It gained a reputation as a safe-haven currency during turbulent times…" Now that we find ourselves in the middle of a financial crisis, that's a perfectly good explanation – in retrospect. But could you have predicted the yen's current strength six months ago? A year ago?
It depends on how you would have gone about coming up with that prediction. Was there anything in the yen's "fundamentals" six-twelve months ago that would have suggested its current strength? Unless the memory fails me, no. So, a year ago, stating that the yen would soon gain "a reputation as a safe-haven currency" likely would have been nothing but a wild guess.
The opposite of wild guesses is a certainty. Somewhere in-between is a forecast – still a guess, because no one knows the future – but an educated guess, nevertheless. (Maybe even a highly educated one.) Thus, a forecast is not based on guesswork; in the two examples you're about to see, forecasts were based on years of experience and concrete technical evidence that the yen was offering earlier this year.
Here is a forecast for the USD/JPY from Elliott Wave International's monthly Global Market Perspective (GMP) – as published on January 4, 2008, almost exactly a year ago:
Forecast, January 2008 GMP (excerpt): "We can anticipate that the yen will … resume its larger bull trend against the dollar, evidenced by $JPY falling to a new low."
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