Hey, have you noticed the yen lately?
The prospect of the coming election, and the monetary stimulus that is likely to follow, has accomplished what multiple interventions by the Bank of Japan have failed to do: weaken the Japanese currency. Earlier today the yen slipped below 83 to the dollar, a key threshold, and some traders think it could reach 90 inside of six months.
A move from where we are now, 83 to 90, while it sounds big, it wouldn't be out of the realm of possibility or historical precedent," Tommy Molloy of FX Solutions told me. "With the elections out of the way, it will really be just a question of when that's going to happen, whether it's a six-month process or a one-month process."
Neil Mellor at Bank of New York Mellon is also bearish on the yen's prospects, though he is not predicting specific levels for the currency. Describing the plans of Shinzo Abe, who is likely to be returned to power in Sunday's elections, he says, "Abe wishes to 'work with the BOJ' to finally overcome deflation by implanting an unprecedented level of monetary easing. Combined with the very real potential for a ratings downgrade, this would be about as JPY-negative a backdrop as we have witnessed in many a year."
Mellor isn't expecting a rapid selloff. In a note to clients, he wrote that the yen "has yet to shake off its long-standing role as a safe haven which could yet thwart any new adherents to the JPY bear camp if the Euro-area persist with its present policy mix." But all in all, he says, "the odds on USD/JPY extending its recent revival well into 2013 appear to be shortening in our book."
Fasten your seatbelts, folks.