These so-called Fibonacci retracement levels, derived from a sequence discovered by a 13th century mathematician, are widely watched and regarded as significant by traders who base moves on historical analysis.
"This might be a place for at least a temporary cessation of these gains" in the dollar against the yen, said Andrew Chaveriat, a technical strategist at BNP Paribas. "The market may run out of steam and we might very well stall here at the long-term Fibonacci level." The relative strength index has hovered above the 70 level since Dec. 7, while the yen continued to slide by 3.9 percent.
That's a reason traders should be cautious about timing their bets around technical signals, some analysts said.
"If you followed this indicator you would have been shredded all the way down," losing money while waiting for the yen to rebound, said David Solin, a partner at Foreign Exchange Analytics in Essex, Connecticut. While "technically you can find reasons that this might suggest a logical place to turn around very sharply, there's still some momentum and you'd be foolish" to bet against it, he said.
Zembei Mizoguchi, director-general of the Japan's Ministry of Finance's international bureau, said the currency's decline was justified given the weak state of the economy, which the government said fell into recession in November last year.
Some officials have advocated a weaker currency, which could boost the economy by increasing exporters' overseas earnings and making Japanese products more competitive abroad. Interest rates have been near zero percent since March and the government's debt load is estimated at 130 percent of gross domestic product, limiting other means of boosting the economy.
"Japan's economy is in terrible, terrible shape and it's getting worse," said Solin. "The risk is very high" that the yen will slump further before a pause, he said.
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