The typical correlation between the value of a given markets equities, and the value of its local currency is pretty well illustrated here. The Nikkei has come along way – and as I expect JPY to take a bounce, one can only assume it’s likely time for a correction in Japanese stocks as well.
The chart below is weekly – and the horizontal line of support and resistance should be drawn with a “crayola crayon” not a laser pointer. When viewing a weekly chart one has to keep in mind that a “turn” doesn’t happen overnight. Imagine even one or two more candles tucked up there around these price levels – and you’re already looking out to mid April.
Nikkei Close To Correction
At times – some of my trades take weeks to develop, and then even longer to pay off ( all be it… pay off well ). For those seeking “instant gratification” when trading foreign exchange – perhaps you’ll need to look elsewhere.
Finding the opportunities is one thing – being able to effectively trade them is another.
It’s been a real grind sideways in the majority of the JPY pairs over the past couple weeks, and the trade has tested me on several occasions. With volatility at extremes and a lack of clarity in market direction – JPY certainly hasn’t “taken off for the moon” on this expected move higher. As outlined in the chart above – the probability of a substancial move remains.
Strategic Positioning for the JPY Reversal Play
The Macro Foundation Behind JPY Strength
While the correlation between the Nikkei and JPY weakness has been textbook perfect, the underlying fundamentals are setting up for a classic reversal scenario that seasoned traders recognize immediately. The Bank of Japan’s yield curve control policy has created an artificial ceiling on JGB yields, but global bond markets are forcing their hand. When you see 10-year Treasury yields pushing higher while JGBs remain artificially suppressed, that spread becomes unsustainable. Smart money knows this can’t last forever, and positioning ahead of policy shifts is where the real profits are made.
The carry trade unwind is the elephant in the room that most retail traders completely miss. Institutional players have been borrowing cheap JPY to fund positions in higher-yielding assets globally. When this trade reverses – and it always does eventually – the covering of these massive short JPY positions creates explosive moves higher in the currency. We’re seeing early signs of this unwind in the volatility patterns across JPY pairs, particularly in how USD/JPY reacts to any hint of risk-off sentiment in global markets.
Technical Confluence Across Multiple JPY Pairs
The beauty of trading currency correlations is when multiple pairs start flashing the same signals simultaneously. EUR/JPY is sitting right at a critical weekly resistance level that’s held since early 2022, while GBP/JPY is showing classic distribution patterns at these elevated levels. AUD/JPY tells an even clearer story – the pair has been painting lower highs while maintaining the illusion of strength, exactly what you’d expect before a significant JPY rally.
USD/JPY remains the key pair to watch, and the 150 level isn’t just a psychological barrier – it’s where intervention risk becomes real. The Ministry of Finance has made it clear they’re monitoring exchange rates, and their previous interventions have coincided with similar technical setups. When central bank intervention aligns with technical analysis and fundamental shifts, that’s when you get moves that can fund your retirement. The weekly charts are screaming that we’re approaching decision time.
Risk Management in Low Volatility Environments
Trading in these grinding, sideways markets requires a completely different mindset than the explosive moves we saw during 2022. Position sizing becomes even more critical when implied volatility is suppressed, because when the breakout finally comes, it often happens faster than anyone expects. The current environment is actually perfect for accumulating positions at favorable levels, but only if you have the discipline to scale in properly rather than putting on full size immediately.
Stop losses in JPY pairs need to account for the occasional intervention spike or flash crash that seems to happen when everyone least expects it. Setting stops too tight in this environment is a recipe for getting stopped out right before the move you’ve been waiting for finally materializes. The professionals are using options strategies to define their risk while maintaining upside exposure, particularly buying JPY calls that are trading at historically cheap levels due to the suppressed volatility.
Timing the Inflection Point
The mistake most traders make is trying to pick the exact top or bottom instead of positioning for the move and letting it develop. Based on seasonal patterns, JPY strength typically shows up in Q2 as Japanese corporations repatriate overseas earnings before the fiscal year-end. This fundamental flow often coincides with technical breakouts, creating the perfect storm for sustained moves.
Market sentiment surveys show extreme positioning against the JPY, with commercial traders holding near-record short positions. When positioning gets this one-sided, the eventual reversal tends to be violent and sustained. The smart money isn’t trying to pick the exact day this turns – they’re positioning for a multi-week move that could easily see USD/JPY back below 140 and EUR/JPY testing 155 support.
Patience remains the key virtue here. The setup is textbook, the fundamentals are aligning, and the technical patterns are painting the picture clearly. What we need now is time for this trade to mature, and the conviction to hold positions through the inevitable noise and false starts that always accompany significant market turns.
Hi Kong!
Interesting comments on the Yen & Nikkei. Looks like the Yen did a 180 at 8:30 a.m.. EST.
Is this what you meant by long JPY continues to make sense?
If so, I might add the Nikkei was up big time today (Monday) in Asia.
My gut tells me this will be reversed in the overnight.
What do you think?
I know you operate in currency pairs, but how about puts in the DXJ?
Zkotpen!
It sounds to me like you are tied to this trade – (perhaps emotionally?) as I know you are currently positioned opposite myself.
I will continue to “trade what I see” Zkot…..and I see JPY moving higher, and the Nikkei to correct. Getting short “DXJ” would equate to the same trade – YES!
Im short CHF/JPY in profit, GBP/JPY in profit, EUR/JPY in profit , USD/JPY in profit ….now adding CAD/JPY in profit etc……what else can I say?
Thanks for the reply Kong! Yes, we’re on the same side of this trade: Nikkei down, JPY up.
I reckon Nikkei traders need to take profits this week and maybe beginning of next. Once BoJ leadership meets, it seems to me it will be hard to keep the Yen long and continue selling the Nikkei.
The Asians are MUCH more structured than we are. Drove me crazy living in Korea for a year. The most high conformity society I have ever lived in. I found China also highly structured.
For us traders, predictability is vital. A couple of weeks ago, during the BoJ leadership confirmation, one of the Prime Minister’s key Economic advisers pretty much remarked that the “Yenny” (1 yen = 1 US penny or less) was all but a done deal. The article in Bloombergs suggested that such a suggestion “slipped” — he was not supposed to be so revealing in public.
I’m looking at the SPX, precious metals, miners — they are all over the place this morning. Will they go higher? Lower? Who knows?
It seems much clearer that the Yen will go higher, Nikkei lower,… until that changes… presumably next week.
A nice move here this morning in the JPY pairs!
Great work Zkotpen – we are very early here ( as I am often ) so…….it is “still” a lil “touch and go” but I like the action here as of this morning. Stay sharp!
Thanks Kong! I am in the 43 puts for April 20. Looking for DXJ to drop to 42 or even lower. Great action in the Yen this morning, and I believe we’ll have more good news with the Nikkei giving back Monday’s (today’s) gains in the overnight. At any rate, I plan to exit this position before the BoJ meeting finishes next week. I certainly do not want to go against those guys!
I have applied for a job at my bank to recharge the account… phone support for people with brokerage accounts.
But, you know, I might just see if I can find work teaching in Japan… seems like a place I need to live for a while. When I least expect it, I find myself strangely moving in that direction.
Take care!
Kong,cant thank you enough. Followed your lead,went short CHF,/GBP/EUR,USD. We will be taking a well deserved vacation on the profits this morning. Your analysis and advice on timing have been spot on. I gather from your previous blogs that you are thinking of a subscription service. We will keep following your lead and will definitely want to be part of the Kong group going forward. Thanks again and keep up the good work.
You are too kind – I am so pleased you’ve done so well. Congrats!
I’m still working/brainstorming providing the best services I can. It’s coming soon!
Kong…..gone
Great call again Kong as usual. I had some free time today and was very helpful. Thx again. Think this Jpy move got legs?
Thnx Nfxtrader.
You know me…..I’ll take it for what it’s worth.
I identify the turns….trade’em – and make whatever longer term “predictions” I can (although I really don’t care too) in order to keep some “semblance” of a trading plan together.
I am bearish JPY long term – and am trading a counter trend move – that’s it.
Imagine it went nuts and completely 100% reversed/retraced the entire move down over the past few months – I can’t say. My short term tech keeps me on the right side – and so be it. Legs…..feet…..arms – who can say for sure!
I have to admit you are very grounded. I have a hard time with my emotions getting in the way.
Well……I can only suggest that you just stick with it. Trading small helps alot to remove the emotions, as well – the longer you do this….the less emotions play a part.
I can remember when I started out – at times my heart was pounding, sweating etc – it was terrible actually.
Now – I am absolutely 100% emotion free.
It just takes time.
Hi Knog i am reading your website now for sometime with intrest i was wondering what timeframes you mostly focus on?
I have not reayy good succes yet with forex recently thing became bit better by focussing on more support ressistance and ditching some indicators.
I was wondering if you maybe could give me some tips where better to look for which direction i should take metholodgy >and what timeframes ? somethings like that.
I hope you can give me answer thanks anyway.
Wish you a good day and week.
Fuzz
Hey Fuzz – great having you here, and great questions.
I view ALL time frames – and gain perspective/insight “from ALL time frames”.
The weekly gives me a good idea of the longer term view – and seeing lines of support and resistance hit there – you know they are SOLID areas to consider. Otherwise…..obviously I like to see as many time frames “match up” as possible with respect to their given direction and trend…ie…weekly down….daily down…..then 4H down etc…..but this is not always the case.
I would rarely take a trade if I am not certain that at least the 4H chart is suggestive of some kind of trend – let’s put it that way. Once “trend” has clearly been established – I am able to jump down to the teeny tiny time frames – and trade the hell out of it.
Patience is a very large part of my trading – as at times….weeks (even months on occasion) can go by, while I sit in cash.
Hi Kong!
Gday mate! I’m afraid you lost me on your latest tweet… I don’t get it.
Are you looking for the Yen to get back on the weakness track?
How about the Nikkei? Done correcting?
I am 100% in cash now, as the markets strike me as totally indecisive, showing no apparent trend.
If you are considering going to a paid blog, let me kindly make two recommendations:
1. Make your articles, and super duper especially your tweets crystal clear, leaving no room for ambiguity or misinterpretation. If somebody takes your advice and acts 180 degrees out of phase, you could find your life extremely complicated.
2. Along those lines, I recommend posting/tweeting clear trades. You say you post live trades, but they are not entirely clear. For instance, include: Symbol, trade type (long or short), time and date stamp (either Eastern time or UTC/GMT time), entry range, stop loss range, and target price. I would also recommend any special instructions ,with an instruction link to help traders find the medium of exchange (many of us trade the NY markets, perhaps others as well). You can also supplement such tweets with modifications. For instance, if something goes up in price, you can raise your stops, and target range, as your tech analysis indicates. Likewise, report your sales, including stopped out sales.
I think your insights into the Forex trading are fascinating as well as profitable. If you want to take your blog to the next level, as in, selling the most profitable thing with the highest markup on earth, i.e., information, I highly recommend crystal clarity, zero ambiguity, and absolutely no room for misinterpretation.
As a free hobby blog, however, its just fine as is, as I’m sure you know.
Hope you take these constructive comments in the positive way in which they are meant… I do think you’ve developed some great material. In order to convert it to a marketable info product requires shoring up the editorial side of things. (And the marketing, which I reckon you’re already aware of).
Best of luck with it!
Cheers ~ zkot
Zkotpen.
The trades are in pairs such as EUR/JPY – but “short”. So….(in being LONG JPY) I have orders “under” this pair for example – as it will go lower on further JPY strength. Sorry for the confusion – but the majority of pairs that I am playing “long JPY” manifest as short trades! AUD/JPY, GBP/JPY etc….all “short trades”.
Otherwise…..thank you so much for all the excellent suggestions on the blog – I really appreciate the input.
Fantastic suggestions – thank you!