Forexserve - Market Bytes

The Japanese yen has broken through a major psychological barrier against the dollar for the first time in four years, setting the stage for further weakness seen as a boon for the country’s exporters and economy.

For the past month, the yen had stalled before the 100 threshold and traders said its weakening in afternoon trading in New York on Thursday to Y100.79 reflected stop-losses being triggered that sparked selling of the yen and purchases of the dollar. The yen continued its fall on Friday morning in Tokyo, sliding to 100.85 against the greenback.

The yen has weakened substantially against its major trading rivals since December, when Shinzo Abe was elected prime minister after campaigning to arrest the country’s past two decades of falling prices and boost its economy.

The sharp drop in the currency in recent months has already boosted profits for Japan’s exporters and sparked a massive rally in the country’s equity market, with the Nikkei 225 index up 36.5 per cent this year. The Nikkie rose 1.8 per cent in early morning trading in Tokyo on Friday.

Further yen weakness is expected to boost inflation and push equity and property prices higher, but may also incur the wrath of Japan’s trading partners as the country’s exporters become more competitive.

The dollar rose above 100 yen for the first time since April 2009, on Thursday afternoon in New York, crowning a decline of 27 per cent since last November for the Japanese currency.

Investors and traders have been expecting the dollar to break through the psychological barrier of Y100 since the Bank of Japan announced its massive bond-buying programme at the start of April.

“Breaking this key level opens the door to a further fall of 5 per cent and possibly Y110 by the end of the year, said by a currency strategid. “It potentially has political repercussions as Japan’s trading partners may complain.” He added

Traders say that the yen trade has been driven by hedge funds, who made billions earlier this year selling the yen. In contrast, Japanese investors have yet to sell the yen in droves, with official figures showing a preference for repatriating overseas assets this year instead.

Analysts predict that if Japan’s army of retail investors decides to wade into the short yen trade, the Japanese currency could weaken further.

“Hedge funds are now in Abenomics nirvana,” said by a currency strategist of a international bank.

The move in the yen was accompanied by a scramble in other currencies as the US dollar appreciated sharply against the euro, sterling and the Australian dollar. The euro rose above Y131 for the first time since January 2010, and has appreciated 30 per cent since November.