Yen pairs have been soaring to new heights recently, reaching levels not tested since 2008, but will the rallies last? Here are some reasons why yen pairs might keep climbing.
1. Weak data = More BOJ stimulus?
In this week alone, Japan has released more than its fair share of weaker than expected economic reports. The current account balance, final GDP, tertiary industry activity, BSI manufacturing data, consumer confidence, and core machinery orders data have ALL fallen short of analysts’ expectations. Tsk, tsk…
Of course this had traders buzzing about another round of stimulus from the BOJ, as central bank officials have repeatedly expressed their readiness to pump up their easing program if the need arises. And if there’s anything we’ve learned from their massive stimulus program, it seems that BOJ Governor Kuroda won’t shy away from being extra aggressive again!
2. Potential taper to support USD flows
Another factor that’s driving traders away from the Japanese yen is the increasing possibility of a Fed taper, which is making the U.S. dollar more appealing among the lower-yielding currencies club. After all, the November NFP report came in much better than expected, enough to convince some traders that the Fed could taper this December.
With the Fed looking to taper sooner or later and the BOJ still open to increasing its stimulus efforts, there’s a pretty solid case for further USD/JPY rallies. Now this kind of price action tends to spill over to other yen pairs so fresh highs could be in the cards for ’em as well.
3. Improvements in risk appetite
Last but definitely not least, the recent improvements in risk appetite could add fuel to the yen selloff. Traders have started buying up higher-yielding currencies again, mostly because of strong Chinese economic data released this week.
Also, let’s not forget that the Santa Claus rally could be waiting just around the corner. Equity market gains, which are typically seen towards the end of December up to the first few weeks of January, could keep higher-yielding currencies supported in the next few weeks.
Do you think yen pairs could take on new highs before the end of 2013? Let us know by voting through the poll below!