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Will yen bears finally be rewarded for their patience?

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Yen bears, many of which predicted the currency would end the year at 105-110 against the U.S. dollar, could finally be rewarded for their patience after the pair struggled to break above 100 for months.

The yen fell to a four-and-a-half month low of 101.30 against the dollar on Friday amid signs that the U.S. central bank is moving closer to winding down its monetary stimulus while the Bank of Japan remains fully committed to its expansionist policy.

"For dollar-yen, 100 is now in the rearview mirror. From a fundamental perspective, we have long said that U.S. rates are headed higher and as long as this remains true, dollar-yen will rise," said Kathy Lien, managing director, FX Strategy at BK Asset Management, citing the positive correlation between U.S. yields and dollar-yen.

By mid-2014, Lien said she expects 10-year Treasury yields will be comfortably above 3 percent and closer to 3.5 percent, which would be consistent with 105 in dollar-yen.

"Of course, this does not remove the possibility of a retracement before this level is reached especially if investors need to adjust their expectations for tapering in 2014 instead of 2013," she added.

(Read More: Are the stars re-aligning for dollar-yen?)

Is the Japan trade back on?

From a technical perspective, Lien forecasts at least another 3 to 5 percent move higher in dollar-yen in the coming weeks so long as it does not drop back below 100.

Nicholas Bennenbroek, head of currency strategy at Wells Fargo says while the trend for dollar-yen is up, he believes it will take some time to make headway.

"The one concern I have is the yen positioning is very short - it gives you some pause about how quickly we can move," he said.

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According to the latest Commodity Futures Trading Commission (CFTC) International Monetary Market (IMM) report, short yen positions are near a seven-year high, meaning that the pair is vulnerable to profit taking on any sign of weakness.

"The idea is that the [Bank of Japan] bond purchases will continue, [and] there's even a thought that there might be further policy action around the time of the tax hike - I do think overtime we're going to get a weaker Japanese yen. I don't know if it's going to happen in the next week or two," he said.

(Read More: As dollar-yen breaks above 100, struggle begins)

The Japanese government's decision to raise the country's consumption tax to 8 percent from 5 percent next April has fueled speculation that the central bank may ease monetary policy further by mid-2014 to offset the negative impact of the fiscal tightening.

Mitul Kotecha, head of foreign exchange Strategy at Crédit Agricole says the combination of better-than-expected U.S. data - which is shifting expectations of Fed tapering back to around December or January - coupled with BOJ's easy monetary stance is a recipe for dollar-yen upside.

"We continue to look for a sustained break of 100 as identified by the 'strong buy' signal for dollar-yen in our quantitative model," he said.

Kotecha sees the pair at 103 by the end of 2013 and 109 by the end of the first quarter of 2014.

—By CNBC's Ansuya Harjani; Follow her on Twitter:@Ansuya_H

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