USDJPY resistance around 103.00/.50

USDJPY exchange rate volatility decreased in February with the currency pair trading in the 100.75 to 102.75 range since the beginning of the month, following a slump of five big figures in January. We remain bullish on the USD versus the JPY though, given the monetary policy divergence of the two countries' central banks. The BoJ hinted at further stimulus while the Fed is widely seen to continue its tapering efforts moderately but steadily. The chart tells us that USDJPY will hit some resistance in the Y103 to 103.5 range. Should the rate manage to break above that level, we see the USD moving towards Y105 again.

Bigger picture: The depreciation of the JPY can hardly be of benefit to China, which recently intervened in an attempt to signal market participants that it won't accept the CNY to go in one direction only. You should expect more two-way volatility for CNY exchange rates from now on. If Japan will continue to devalue the JPY in one way or the other, China and other Asian countries will be tempted to do the same with their currencies so as not to put their exporting businesses at a disadvantage. This may well culminate in a currency war in Asia and a deepening of the conflict between China and Japan. If you have exposure to Chinese or Japanese assets and currencies, do not lose sight of this particular risk. We see plenty of potential for disputes that may ultimately bring a new round of war rhetoric in the second quarter of 2014.