The yen was the Miley Cyrus and Justin Bieber of the currency world in 2013 as it was closely watched by its haters. Check out the factors that contributed to the yen’s epic fall against the Greenback!
Prime Minister and Liberal Democratic Party of Japan (LDP) leader Shinzo Abe did a Katy Perry and started the year with a roar as he promised to use aggressive measures to end Japan’s decades-long battle against deflation. Soon enough, we saw the BOJ double its inflation target, conduct an open-ended QE, and set a target of two years for their goals.
The promise of unlimited stimulus weighed on the yen until around the middle of the year when doubts on Abe’s conviction as well as overall risk aversion boosted the low-yielding yen. It also didn’t help that the BOJ didn’t release any more bombshells to support its conviction. As a result, USD/JPY had dropped by a ridiculous 900 pips in a span of ONE month!!!
Luckily for the BOJ, it had found an ally in the Fed in the second half of the year as Ben Bernanke and his gang began hinting that they might scale back their own stimulus program. The prospect of Fed tapering kept USD/JPY above 96.00 until a combination of positive U.S. and Japanese data, regular jawboning by the BOJ, and Uncle Sam avoiding a debt default lifted USD/JPY all the way to new yearly highs. Yowza!
In 2014 the consistency of USD/JPY strength will most likely depend on the Fed’s pace in tapering its asset purchases and the BOJ’s commitment to achieve its 2% inflation target. What do you think? Has the yen bottomed out or is USD/JPY headed for 120.00 as some analysts are expecting?