The Japanese Yen Currency of the Year

The Japanese yen has been one of the most talked about and traded currencies over the past 6 months. When the eurozone crisis was at its highest and traders ran for safety, the JPY was the currency of choice. Even as gold approached the 1800 price level as the FOMC dumped billions of dollars into the economy, the JPY continued to trade strong. For months the USD/JPY was stuck in the 78.50 price range. As Japanese exporters began to complain about the strength of the JPY, major Japanese manufacturing companies started to lose the battle, stocks tumbled as profits turned to losses on currency valuations.

The Bank of Japan, began to expand its asset purchase programs adding trillions of yen in a few short months, but was unable to reduce the value of the JPY. The currency and the bank were major factors in the collapse of Prime Minister Noda’s government.

Recent elections have seen the Liberal Democratic Party’s return to control and Mr. Abe once again being installed as Prime Minister of Japan. Abe’s major platform and campaign promise was to force the Bank of Japan to offer unlimited monetary easing to help the economy to recover, regardless of the value of the JPY. The newly appointed Minister of Finance said last week that he envisions the JPY trading between 85-90 this year.

The yen sank to its lowest against the dollar in about two years and five months trading at 85.96 as expectations rose that the Bank of Japan will act more boldly in the coming months under pressure from Abe’s new government. The yen also fell against the euro to trade at 113.58, brightening the outlook for exporters’ earnings.

There is a popular view in the market that Japanese companies will get a huge boost from this foreign-exchange factor, especially in fiscal 2013.Things may get even better for Tokyo stocks if the United States can avert the fiscal cliff and Wall Street stocks rebound strongly.

Global investors are keeping close tabs on U.S. budget talks aimed at averting the fiscal cliff of tax hikes and spending cuts set to take effect at the start of 2013. The chances of reaching a deal might be 50-50, but even if the U.S. goes off the fiscal cliff, stocks are unlikely to suffer a free-fall.

The Nikkei will end the year at record high as equities soar on loose monetary policy. While US futures continue to decline after a 5 day down streak last week, futures remain down ahead of the Monday opening.