How much room has the Yen to fall? The Yen bears seem to be back in full force and are becoming very vocal. The currency of the ‘rising sun’ has ended the week sharply lower outright, mostly due to comments from LDP leader Abe suggesting a foreign bond component to the Bank of Japan easing. If true, this would become a game changer for further weakness of the currency, however, if and when decided, it will only ever be a gradual process, as international pushback should become a natural constraint.
Easing hopes in Q1 are expected to provide good support for the currency pair. If US growth outperforms next year, the mighty ‘dollar’ could end up pushing the yen deep into a three-figure dollar extreme. Some analysts believe a “significant overvaluation of the yen, a deteriorating balance of payments in Japan and a potential new major shift in their monetary policy” all point to a significant free-fall of their currency. Next month’s Japanese election is the unknown variable.
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