A 2 percent rise in the yen's value since Friday has some currency analysts calling a top on dollar-yen, just days after the currency pair looked poised to break through the key 100-barrier.
Bets to sell the yen appear to be off the table for now following Friday's weaker-than-expected U.S. economic growth numbers and uneventful Bank of Japan meeting.
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The yen rose to 97.33 per dollar on Monday, its strongest level against the dollar in more than a week and well off a four-year low hit just shy of 100 earlier this month.
"In the near term, dollar-yen is looking a bit vulnerable," said Sean Callow, senior currency strategist at Westpac bank, who forecasts the yen to strengthen to 96 per dollar over the next month and to 93 by December. A move to 93 would imply a gain of more than 4 percent for the yen from current levels.
The Bank of Japan on Friday reiterated that it would pump $1.4 trillion into the economy to revive growth and end deflation. But doubts from central bank members over whether the BOJ can meet its inflation target of 2 percent in two years prompted some yen buying.
Data showing the U.S. economy grew by an annual rate of 2.5 percent in the first quarter, down on expectations of 3 percent growth, provided traders with another reason to sell the dollar and buy the battered yen.
According to Callow, two factors could now drive further yen gains: broad weakness in the dollar following softer U.S. data and the continued selling of foreign bonds by Japanese domestic investors.
"The latest data from the Ministry of Finance has shown that but for all of one week since January, Japanese investors have been net sellers of foreign bonds. Until they stop doing that, we could see continued strength in the yen," said Callow.
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Japanese Prime Minister Shinzo Abe's pledge to turn the world's third largest economy around, partly through aggressive monetary easing, has knocked more than 20 percent off the yen's value against the dollar since November.
However, the weakening trend has slowed in recent weeks as the dollar failed to push above the key 100 dollar level, having flirted with the barrier on several occasions. Analysts say that options barriers may be a reason why the 100-level appears out of reach for now.
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Watch Those Speculators
"For the time-being yen weakness is reliant on foreign traders and hedge funds shorting the yen. If we see hedge funds start to take profits that could also drive further strength in the currency," said Westpac's Callow.
Craig Chan, head of FX strategy, Asia ex-Japan at Japanese investment bank Nomura, said it was too early to call a top on the dollar-yen pair. He forecast the yen to weaken to 100 against the dollar this quarter and reach 102 by December.
"We are still on an upward trajectory on dollar-yen, and I still expect the yen to break the 100 barrier," he said. "The recent (yen) strength is just a reaction to the Bank of Japan meeting where nothing new happened."
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With an important election coming up in July, Chan expects Prime Minister Shinzo Abe will strive to keep market sentiment strong by making sure the aggressive monetary policy action he has promised is put into action, a move that points to further yen weakness, he said.