If Japanese policymakers could name one maddening barrier to the country's economic renewal, chances are a number of them would cite the yen.
A strong yen has hobbled Japan's efforts to return to strong growth through exports, and it is crimping corporate profits in electronics and other industries. But nothing has successfully brought the currency down for long: not jawboning, not low interest rates, not even active market intervention. The yen has remained frozen in strength.
When Shinzo Abe, leader of the opposition Liberal Democratic Party, last week called for aggressive monetary easing shortly after the prime minister called for early elections, the yen started sliding, and it has barely let up since.
The shift is more than temporary, according to Marc Chandler, chief currency strategist at Brown Brothers Harriman.
"LDP leader and likely the new prime minister of Japan has done with a few aggressive comments what the Noda government and the BOJ have failed with achieve with QE and threat of intervention and that is to break the link between the yen and the more general risk environment," he says. In other words, investors' reflexive turn toward the yen as a haven from risk may be a thing of the past, and the yen may trade more on other Japan-driven factors like interest rate policies.
Jens Nordvig, global head of currency strategy at Nomura Securities, concurs. "The 'new BoJ' theme is very real to us," he wrote in a note to clients. Nordvig thinks the yen could bounce around a bit near term, what with the U.S. fiscal cliff shenanigans and other year-end dramas. But he thinks the dollar could reach 85.00 against the yen by early 2013.
Not bad, Mr. Abe.
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