>While looking at USDJPY, I think it is just astonishing to consider the overall scale of movement over the course of the last century -- from a low of just 1.82 yen per dollar (in October 1918) to a high of 620 yen per dollar (in March 1950). [These are monthly closings, and actual daily closes and intra-day highs/lows could have been even more extreme.]
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>Let's take a quick look at the pattern of motion across each fascinating decade since World War One:
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>The Dollar peaked at 2.07 in September 1915 before correcting mildly to 1.82 (-12%) by October 1918 at the end of the War. Some further flat movement extended the consolidation to 1.94 by August 1920. This completed what I believe to be the First and Second Primary Waves.
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>The next 30 years represent what must rank among the great appreciations in the history of major currencies [the others being Sterling against the Dollar at the time of the US Revolutionary War, and Sterling and the Dollar against the German Mark during the infamous hyperinflation period... to be saved for a different posting.] Against the Japanese Yen, the Dollar rose from 1.94 up to 620 in 5 waves, altogether comprising the Third Primary Wave.
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>The first leg involved a 34% appreciation from 1.94 to 2.60 between August 1920 and January 1925.
>The second leg, embracing the Wall Street Crash of '29, saw the Dollar fall back 22% from 2.60 to 2.02 by February 1931.
>The third leg was a remarkably sharp but brief upswing of 140% from 2.02 to 4.85 between February 1931 and November 1932.
>The fourth leg was then a remarkably long and flat consolidation, with the Dollar losing as much as 32% from 4.85 to 3.30 by April 1934, but then recovering somewhat and remaining fixed at 4.27 during WW II until August 1945.
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>The fifth leg of this big Primary Three is the heart of the increase in value, and represents not just the devastation of Japan by the Bomb, but also the true strength of America immediately following the war.
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>Part one of this revaluation saw an instant re-fixing from 4.27 to 50 (+1070%) in August 1945. [Wonder if anyone had Options??]
>Part two of this sequence is the pause represented by the fixed rate remaining at 50 until July 1947.
>Part three resumes the official upward valuation of the Dollar from 50 to 240 (+380%) in July 1947.
>Part four involved a slight correction (again 12% like in 1915-18) from 240 to 210 by October 1947.
>Part five of the fifth leg of Primary Three is the final burst, covering the most arithmetic Points, but continuing the reduced pace of growth -- just 195% from 210 to 620 between October 1947 and March 1950. This wave also subdivides in perfect fractal form as follows:
> 1. +31% from 210 to 275 between October 1947 and April 1948
> 2. -20% from 275 to 220 between April 1948 and June 1948
> 3. +50% from 220 to 330 between June 1948 and November 1948
> 4. -6% from 330 to 310 between November 1948 and December 1948
> 5. +100% from 310 to 620 between December 1948 and March 1950
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>Since 1950, then, the Dollar has seemed to be on a one-way ticket down, losing 87% from 620 to 83.20 at the close of May 1995 (the actual low was just below 80.00). To a large degree, this depreciation in the USD (appreciation in the JPY) is as much a function of America's net decline in economic strength over that period as it was Japan's incredible effort and success at rebuilding and producing economic power.
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>The entire phase since 1950 represents the Fourth Primary Wave, and as such is not surprisingly much less clear in its component wavecounts. There do seem to be several clear sections, though:
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> First, an initial rapid retracement of 40% from 620 to 375 between March 1950 and January 1952.
> Second, some bouncing around over a range from 375 to 475 between January 1952 and November 1958 (the spike high in January 1954), followed by an extended period of stability between 375 and 425 terminating at 380 in December 1970.
> Third, renewed acceleration to the downside, with the Dollar losing more than 50% of its value from 380 to 176 between December 1970 and October 1978 (consistent with the bear market in US equities).
> Next, a good recovery of almost 60% from 176 to 277 between October 1978 and October 1982.
> This was followed by a renewed era of Dollar weakness and Yen strength within a more globalised floating monetary regime guided by G5 policies. After making a lower high at 259 in 1985, the USD thus fell quickly by 50% to 122 by November 1988. A brief respite gathered steam from the collapse in Japanese equity prices, allowing the Dollar to recover by 30% from 122 up to 160 by April 1990. The attraction of capital into Japanese bonds during a period of collapsing interest rates partly explains the renewed downward pressure on the Dollar, causing the capitulation to 83 in May 1995. Since then, of course, the Dollar has seen a remarkable recovery, increasing by nearly 80% at the peak in September 1998, before falling back over 30% by January 2000.
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>The question is, what has been happening since May 1995?
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>I see four possible scenarios (not in order of preference):
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>(1) The 1995 low was a key reversal, marking the start of the Fifth Primary Wave. The 1995-1998 upswing was the first leg in this larger impulsive sequence. The 1998-2000 drop was the second (corrective) leg, finishing at the recent lows. In this view, we have now already begun a powerful multi-year advance eventually exceeding 620, but obviously with major resistance along the way at numerous inflection points.
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>(2) Similar to (1) above, except that the second leg is not yet finished, with the current rally just representing a B wave in the middle of an A-B-C pattern which will likely terminate somewhere between 95 and 80 during 2000-2001 before the true third leg up can begin.
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>(3) The 1995 low was not the end of the Fourth Primary Wave. The 1995-1998 upswing, however, was not the entire extent of the bull phase, either, and the 1998-2000 countertrend drop -- after terminating already in early 2000 (as in (1) above) or after another dip not passing below 80 (as in (2) above) -- will give way to a terminal C rally up to the trendline target between 160 and 175 (though possibly somewhat higher). At that point the final capitulation for the Dollar will take it down below 80, with 70 and 50 reasonable targets.
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>(4) The 1995 low was not the end of the Fourth Primary Wave, but the 1995-1998 upswing was all there is to the bull phase. In this case, the 1998-2000 drop was an impulsive start to the final capitulation, and the current rally will not exceed the 1998 high. The eventual downside target for final completion of the entire movement since 1950 is 70 or 50 (as in (3) above).
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>Regarding the possible downside targets at 70 and 50: The former comes from extending the 1931 and 1945 monthly close inflection points on a logarithmic scale. Currently that line is at 71.17 and growing at about 0.40 yen per month. The 1995 low around 80 did not quite reach that line, which was only at around 55 at that time. The other target, 50, is simply the key level from the end of World War II when the Dollar gapped higher.
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>be


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