Zero-interest rate policy weighs on yen

After three years of bearish action, U.S. dollar/Japanese yen (USD/JPY) bulls have controlled the market for much of 2005. And with bullish interest rate differentials strongly favoring the U.S. dollar, most currency watchers expect the uptrend in dollar/yen to continue into year-end.

Dollar/yen tested major long-term support at the 101.50 area in January 2005 and that floor proved to be a solid launching pad for months of steady gains in the pair. Since that January low, dollar/yen bulls have propelled the pair toward the 116 level as of late October.

Plain and simple, bullish interest rate differentials in the U.S. dollar’s favor have been a major factor propelling dollar/yen higher for much of this year. As of Nov. 1, the U.S. Fed funds rate stands at 4 percent vs. the Bank of Japan’s zero-interest rate policy.