'Major Reversal' Ahead for 40-Year Yen Cycle: Charts
Weakness in the Japanese yen is ahead for the long-term, as a 40-year long-term cycle which has seen the yen's exchange rate appreciating against the dollar is about to see a major reversal, Ron William, a technical strategist at MIG Bank, told CNBC.com.
But in the short term the yen is likely to see another bout of appreciation as the effect of the latest intervention in the market to weaken it fades, William said in an interview.
"In the short term in dollar-yen it is very likely that we'll see another post-intervention retracement which basically means the market retraces back to intervention levels," he said.
"The probability is that we'll see a new record low 75 [yen to the dollar] and potentially sub-74. This would be a temporary but dramatic price strike," William added.
Japan intervened three times already this year to put a lid on the yen's rise but the markets believe that authorities "are having less of a meaningful impact on the market," he said.
"That is generally the case with central banks historically; it tends to be a short-term impact. When it's several interventions in a short time, that really magnifies the problem."
The options markets, which are forward looking, currently suggest "a lot of overcrowded trades trying to call the market bottom," according to William.
"I'm looking for this major reversal to develop into December," he said. "By definition this means a big change in mass psychology in how investors use the Japanese yen."
There is likely to be a shift away from the Japanese yen but also from the Swiss franc and gold , other traditional safe havens, as central banks try to limit hot inflows pushing up their currencies and gold is overcrowded, William said.
"From a traditional safe haven perspective there are less safe places to invest your money around the world," he said.
"All this is very positive for the US dollar. And that's the reserve currency of the world still," William said.
Williams sees the US dollar index gaining around 20 percent in the next six months, but his long-term view for the greenback is bearish.
The high-yielding currencies of emerging markets, and particularly the Turkish lira , the Brazilian real and the South African rand , will benefit more from the upcoming yen weakness, as they are very under-valued against the Japanese currency, he predicted.