If you have been short the yen, congratulations.
But if you think all the bad news is priced in, think again.
Steven Englander, head of G10 FX strategy at Citigroup, argues that uncertainty surrounding the upcoming Japanese elections will color yen trading, and "we expect the topside for USDJPY will become much heavier while the pair is above 82." But if the pro-easing Liberal Democratic Party wins, as Englander and others predict, "we suspect then the market could look to the BoJ to take more aggressive monetary easing measures under a new governor. We therefore look for USD to strengthen against JPY, lifting USDJPY into the 84–85 range in early spring."
There is also a tax increase that could weigh on economic activity. "JPY headwinds are likely to intensify, with the sales tax hike driving a spike in domestic demand and further deterioration in Japan's current account," Englander says.
At what levels should you sell the yen against the dollar?
Jens Nordvig, global head of FX strategy at Nomura Securities, has some suggestions in that department.
Nordvig exited his dollar-yen positions after the pair's recent rapid rise. But now that it has pulled back slightly, he wants to get in again - especially since he believes the markets will price in the Liberal Democrats' policy ideas around the time of the December election, well ahead of when they would be felt in 2013.
Says Nordvig: "We are long USDJPY from overnight levels around 81.90 looking for a potential move to 84-85 ahead of the Dec 16 election."