From the December 01, 2009 issue of Futures Magazine • Subscribe!

Yen: No longer weakest link

The yen has been strong against the weak dollar in November, and has been replaced by that weak dollar as the short in many carry trade models.

Brian Dolan, chief currency strategist at Forex.com, says one of the big drivers for dollar-yen is Japanese repatriation of foreign retained profits. “There’s a change to Japanese corporate taxes, allowing them to bring foreign profits home at a reduced tax rate. That’s one of the reasons the yen’s been strong.” He expects the yen to be down around 8250 to 8300, with 8500 as a stopping point along the way before the end of the first quarter of 2010. “We’d have to have a serious train wreck in global risk appetite to see the dollar come back and the yen weaken and that doesn’t seem to be happening at the moment,” he says.

Kathy Lien, director of currency research at GFT, expects range-bound trading in dollar-yen. “The monetary policies of the U.S. and the Japanese are not that different. Interest rates are both at very low levels. The Japanese have begun to unwind some of their unconventional measures and the Federal Reserve hasn’t quite done that yet. Because of that, the dollar overall will continue to weaken and that could push the yen higher,” she says. Lien pegs the range for the yen at between 8800 and 9100 for the rest of the year.

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