REUTERS SUMMIT-Yen may hit 105 vs dollar-Rhicon Currency Management

Sun Apr 21, 2013 9:58pm EDT

* Dollar/yen may rise to around 105 in coming months

* Rhicon exited yen bearish bets by mid-January

* Market ahead of itself in anticipating Japan outflows

By Masayuki Kitano

SINGAPORE, April 22 (Reuters) - The yen looks set to fall further and could hit 105 versus the dollar, although it is unlikely to drop as smoothly as it has done so far, a portfolio manager for FX trading fund Rhicon Currency Management said.

"A move to say, sort of 105 or thereabouts, is very much on the cards," said Christopher Brandon, managing director for Rhicon Currency Management, a Singapore-based fund with about $350 million in assets under management.

"However, I think it would probably entail a broader dollar appreciation across the board to see dollar/yen go higher than that," Brandon told Reuters in an interview for the Reuters FX Summit, when asked about the dollar's outlook versus the yen this year.

The dollar scaled a four-year high of 99.95 yen this month, after the Bank of Japan unveiled drastic monetary stimulus and pledged to pump $1.4 trillion into the economy in less than two years.

That marked a dollar rise of roughly 25 percent versus the yen compared with mid-November, when yen bears began ramping up bets for the yen to weaken, mainly on expectations for aggressive monetary easing by the BOJ.

A trend toward a weaker yen now seems firmly entrenched, and the chances of the dollar dropping back to levels below 83 yen seen late last year appears "extremely unlikely", Brandon said.

Still the yen's declines from here on are unlikely to occur in as straight forward a manner as has been the case until now, said Brandon, a co-founder of Rhicon.

"The market is getting slightly ahead of itself in terms of anticipating the flows out of Japan," Brandon said.

Analysts say the BOJ's sweeping stimulus is likely to eventually prompt Japanese investors such as life insurers to step up investment in higher-yielding assets overseas.

Japanese capital flows data, however, contains no sign so far that the BOJ's drastic stimulus has triggered any Japanese investor rush into overseas assets. Instead, they have repatriated money back home in the first two weeks of April.

PRESSURE ON THE YEN

"If you look at how the investment decisions are made with lifers and so on, it moves a lot slower," Brandon said, adding that Rhicon has tried going long the yen in the past few weeks.

"I think that while we will see continued pressure on the yen, I don't think it's going to be as straight line as it has been," said Brandon, a short-term trader who holds positions for up to a week.

Rhicon, which also has an intraday trader and another trader whose trades last for as long as a month, may see opportunities in different directions depending on the time frame, he added.

Brandon said Rhicon put on bearish bets versus the yen starting around October to November of last year but exited all of them by mid-January, after achieving its profit targets for the trades and also based on technical signals.

"From October-November onwards, we were quite early into the yen weakening trade," he said.

While a focus on technical analysis allows Rhicon to spot trading opportunities early on, it can also lead to frustration when the market moves on policy decisions, Brandon said. One such example was the yen's tumble after the BOJ unleashed its aggressive monetary easing on April 4, he added.

"Because it's not breaking or triggered by any technical points, we tend to miss some of those," Brandon said.

"And it's frustrating. You're on the sidelines waiting for patterns to develop or signals to come and the market runs away before you've been able to get involved," he said.

Brandon said Rhicon achieved a return of roughly 7 percent in 2012, owing to successful trades in the second half. Those included bullish bets on the euro against currencies such as the Australian dollar and the New Zealand dollar , in addition to its bets that the yen would weaken.

More recently, Brandon said he has tried putting on bearish bets against commodity currencies.

"I've actually been trying to express Aussie and kiwi shorts, but actually against the euro, and against sterling. But with mixed success," he said.

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