The yen isn't getting much love these days.
Prime Minister Shinzo Abe is pushing hard for aggressive new stimulus measures, and with the Japanese economy stuck in the doldrums, interest rates are already near rock bottom levels.
As a result, the yen has been on a downward spiral for weeks, and there doesn't seem to be much on the horizon to change that.
"Our sense is that the yen's recent decline has been too far and too fast," said Nick Bennenbroek, head of currency strategy at Wells Fargo. "The Japanese currency's fall has potentially overshot some important interest rate fundamentals, while speculative yen short positions are already very large."
That's not to say Bennenbroek is bullish on the yen. He expects it to reach 88.00 against the dollarby the end of the year. But the near term outlook is more tricky, he said.
"With the next round of U.S. budget talks not far away, we see potential for corrective yen strength during the first quarter," he wrote in a note to clients, with the yen rebounding to around 85.00 against the dollar.
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Bennenbroek said he is still biased toward looking for yen selling opportunities. However, he added, "we would await more favorable levels before initiating such transactions."
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