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Once again this currency cross is making its way back up to the 100 level, after the considerable momentum it had built up over the year disappeared following some less-than-inspiring comments from Japanese prime minister Shinzo Abe.
Mr Abe’s first two phases of weakening the yen had been well received by the currency markets; however, the third and latest did not trigger the follow-through that the markets had expected. It was, in fact, less conclusive, and with a timeline that failed to continue the momentum that the government had built up.
The continuing relaxed attitude that the G7 and G20 have shown towards Japanese fiscal policy has given the currency markets the belief that, once the government reorganises itself, they are unlikely to challenge any further yen weakening. The first hurdle that will need to be cleared is the short term high of Y103.73, but ultimately the Japanese government would like to see it make its way back up to challenging the longer-term high of Y123, set around June 2008. Even the most optimistic Japanese politician would be unlikely to envisage the weakness in yen against the US dollar retesting the pre-2000 highs of Y147.
Even with the volatility we have seen in this currency cross, in the last couple of months it continues to be one of the most popularly traded, and IG clients remain 80% long.