Traders remain very confident in the strength of the Japanese yen (NYSE:FXY). Net longs stayed at “maximum bullishness” even ahead of last week’s monetary policy meeting by the Bank of Japan.
Source: Oanda’s CFTC’s Commitments of Traders
Traders have not been this bullish on the yen since at least 2008.
That boldness paid off as the BoJ failed to deliver more easing -- and the yen soared. USD/JPY dropped to levels last seen in October, 2014 in what now looks like a major top.
Was that major -- multi-year -- top/plateau for USD/JPY?
Search Trends
In the midst of this dramatic turn in sentiment for the yen, I stumbled upon another soaring indicator. Google Trends, an index of the popularity of search terms, shows searches for “Japanese yen” breaking out at the end of 2014 just as USD/JPY was in its final run-up. The search index reached a new all-time high in the last month.
Source: Google Trends
Searchers are at maximum interest in the Japanese yen.
I typically use Google Trends as a sentiment indicator. I like to assess whether the trends or, even more importantly, the extremes in moves are consistent or contrary to other important indicators. In this case, I am comparing Google Trends with the price level of the Japanese yen currency pairs. Note that Google trends broke out just as USD/JPY was running up to multi-year highs (multi-year cheapness for the yen). If I had been looking then, I would have guessed the run-up was coming to an end. In other words, the extreme in USD/JPY was not being confirmed by Google Trends.
Now, indicators are all pointing in favor of yen strength. Yet sentiment seems to be reaching feverish levels. I know I am early in anticipating a bottom for USD/JPY (100 seems like destiny right now), but I am now adding a top in Google Trends as a potential sign that the fever will break sooner than later -- the timing will never be precise. Note that while Google Trends reached a new all-time high in April, the momentum in 2016 has definitely slowed. If Google Trends hits a fresh, new high, I will need to revisit my assessments.
In the meantime, I'm sticking with my strategy of slowly accumulating a long USD/JPY position while fading all other currencies against the yen, especially the British pound, for shorter-term trades.
Be careful out there.
Full disclosure: long USD/JPY, short GBP/JPY