NEW YORK (TheStreet) -- In early April, I made the case for prolonged weakness for assets denominated in Japanese yen. This forecast proved largely accurate, as the CurrencyShares Japanese Yen Trust ETF (FXY) is 14% lower on the year; and the yen itself is the second-worst performing developed-market currency relative to the U.S. dollar.To some, these declines might suggest renewed opportunities to buy. But when we consider the policy outlook at the Bank of Japan, and potential cutbacks in monetary stimulus from the Federal Reserve, there is little reason to believe this downtrend has reached a true bottom. To the contrary, the yen remains a sell, even at these weaker levels. Major divergences in central bank policy favor the U.S. dollar over its Japanese counterpart, and these are trends that should continue well into 2014. In Japan, the intention has been to ramp up bond-purchasing programs as a means to normalize consumer inflation levels. The Bank of Japan's central aim is to achieve inflation rates of 2% in the next two years and reverse decades of stagnant growth. Stimulus plans in Japan make up a larger percentage of GDP than the quantitative easing programs designed by the Fed, and this can only weaken the yen as long as policymakers remain committed to this course of action.
What investors with currency exposure should be looking for is a willingness to implement more aggressive policy measures, as this will imply Japan is ready to use all available tools to make real changes in long-established trends. Aggressive stimulus moves carry associated risks. But if Japan is ever going to become serious about normalizing its economy, risks will need to be taken. What we are looking at here is a country with debt-to-GDP ratios that average 220% (the highest in the world), growth rates that have held flat for nearly a quarter century and consistent vulnerability in consumer price pressures. At this stage, there is no likely scenario that points toward strength in the Japanese currency. Any asset that has seen declines of almost 15% in the last three quarters might look attractive from a contrarian perspective. The reality is that we are still in the early stages of a multi-year downtrend. The Japanese yen is a sell, even at its current moderately depressed levels.
On the weekly charts, bear pressure in FXY has created oversold conditions that might look attractive for long entries, but the series of lower highs on the daily charts indicate further weakness. The symmetrical triangle that started in mid-May has broken to the downside and the next level of support can be found at 96.60. Bearish violations here will accelerate losses. Sell here, or wait for rallies back into 100.70. At the time of publication the author had no position in any stock mentioned. This article was written by an independent contributor, separate from TheStreet's regular news coverage.