Yen weakens ahead of BoJ meeting

USD/JPY has been a star performer over the past 24 hours and managed to extend its gains through US trade as some positive economic data helped to support the greenback.

Source: Bloomberg

USD/JPY traded above ¥105.00 and is within striking distance of January highs of ¥105.44. Once this level is breached, traders will be eyeing a medium-term move towards ¥108.50. While this could take a while to come to fruition, it’s likely to encourage traders to buy the dips. There have been a few reasons floated for this renewed yen weakness, including caution ahead of the BoJ meeting and Prime Minister Abe’s cabinet reshuffle, which takes place today.

Given Kuroda was quite dovish in his last Jackson Hole comments and Abe is tipped to drop some of the ministers who criticise him the most, some investors feel the next couple of days could be a game-changer for Japanese equities. Remember Japan’s third arrow implementation has been tipped as a pivotal part of the recovery and includes potential changes to labour regulations, government pension fund investments, corporate governance and tax policies.

As a result, this reshuffle is rumoured to bring in members who will help Japan move in that direction and, of course, bring more women into key positions. Should January highs be broken, the pair will then be trading at its highest since September 2008. Buying dips in USD/JPY and the Nikkei is likely to be the preferred strategy.

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