After going steady for the last few months, the dollar and the yen are about to break up again, according to strategists – with one even predicting that the dollar-yen is on its way to 125.
The Japanese yen moved back above 100 last week for the first time since September and remains at levels not seen since late May. This comes after a furious start to the year with aggressive monetary easing in Japan causing it to depreciate 20 percent against the dollar in just five months.
The dollar-yen is one of the most widely traded currency pairings in the world. Traders try to exploit slight fluctuations in the price by buying and selling the different currencies and by speculating on whether they might go up or down.
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But analysts are turning bearish again on the yen. Commodities trader Dennis Gartman believes the recent dip in the oil price, after a deal was reached between Iran and six world powers to curb its nuclear program, shows just how weak the yen currently is.
"This news alone should be supportive of the yen, for Japan is of course the nation most seriously exposed to the uncertainties of higher crude prices" he said in a research note on Monday.
"The fundamentals of the Bank of Japan's aggressive expansion of its balance sheet trumps even this fundamental benefit...we are more bearish now than we were previously."
Gartman has a target price of 125 for the dollar-yen, a level it hasn't seen for the last eleven years. Thanos Vamvakidis, head of European G10 foreign exchange strategy at Bank of America Merrill Lynch Global Research is another advocate of the trade, citing a difference in policy between the two central banks.
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The U.S. Federal Reserve looks ever more likely to announce that it is moderating its bond-buying at some point in the new year. This would give U.S. investors and reason to bring their dollars home with interest rates expected to eventually rise from record lows.