[ForexNews]

Last week's rally in the JPY means that the JPY TWI is now back to a level seen in Q1 and higher than at any time in the past 10 years other than the immediate aftermath of the Lehman bankruptcy and the flight to liquidity seen over the winter as confidence collapsed. Indeed, it is more than two standard deviations higher than its average level over that period. Despite the increased nervousness, the world now looks very different from the previous times that the JPY was this strong in trade-weighted terms. This time, we have neither a Lehman-like collapse nor significant short JPY positioning as was seen last year. An important factor was the break of important technical supports and option-related barriers which exacerbated the move. For that reason care should be used when interpreting the size of JPY appreciation as telling us a lot about prospects in anything other than the short run. Furthermore, given the still-fragile state of the Japanese economy, a higher JPY TWI may induce Japanese government officials to take action, especially if it happens quickly.