The USD/JPY pair fell during a significant portion of the trading hours on Tuesday, but as you can see bounced enough in order to form a hammer for the session. The 98 level looks to be somewhat of the support zone, albeit minor. Going forward, I fully expect to see this pair hit the 100 level fairly soon, and possibly higher. After all, this pair has a long history of following the 10 year notes from both economies, and as the United States is seen rising interest rates, it makes sense that money flows into this pair on the upside.
That being said, on the other side of the coin you have the Bank of Japan who is more than willing to work against the value of the Yen. They have just begun their quantitative easing cycle, just as the Federal Reserve looks to end the cycle they have been in. Because of this, I believe that this pair will continue to grind higher for the next several months, if not years.
The beginning of a long-term trend is always tricky
Whenever a currency pair changes direction for the long-term, quite often you will see a lot of jittery market behavior. You can see massive swings in both directions, and then eventually you will see the market settle on the overall trend and grind higher. If you look at this pair back in 1995, we had very similar action before the Bank of Japan finally got what it wanted. It takes a while to convince markets, but eventually the central banks can influence things.
The Japanese need a weaker Yen in order to support their export market, as well as their massive amount of debt. Because of this, the Bank of Japan has absolutely no alternative but to see the Yen weaken. This isn't a matter of what they wish to have, it's what they must have. That being the case, I am not willing to bet against them, and I would simply go with what is the obvious trade, buying on the dips. On a break of the highs from the Tuesday session, I consider that yet another buy signal.