* Weak yen trend to endure in coming months
* Demand steady for 100 yen/dollar option strikes
* Loose fiscal and easier monetary policies to drive market
By Anooja Debnath
LONDON, Jan 22 The yen's slide still has
momentum after three months, with more investors emboldened to
take bets against the currency as they position for a shift to a
much looser fiscal and monetary policy in Tokyo.
Some expect the yen to fall to 100 per dollar in coming
months, a level last seen in April 2009, from around 89
currently, as new Prime Minister Shinzo Abe's administration
prepares to pump-prime the economy by issuing more bonds and
pile pressure on the Bank of Japan to print more yen.
There is also speculation BOJ chief Masaaki Shirakawa, who
retires in April, will be replaced by someone more amenable to
Abe's wish for a much more aggressive monetary policy setting.
In addition to doubling the inflation target, a measure the
BOJ adopted on Tuesday, the government has spoken of steps such
adding employment to the central bank's mandate of price
stability and possible changes to the bank's governance.
So the potent mix of loose fiscal policy, easier monetary
policy and potential uncertainty over the central bank's
independence make the yen well-placed for more weakness,
analysts and traders said.
"The policy change that is taking place in Japan is very
significant and will lead to sustained yen weakness," said Ian
Stannard, FX strategist at Morgan Stanley.
Morgan Stanley expects the dollar to be at 100 yen by the
end of this year and at 105 yen by the end of 2014, compared to
the previous forecasts of 90 yen for both periods.
In the options market, investors such as macro funds which
allocate funds based on economic trends, are considering bets
that the dollar will touch 100 yen.
"We are certainly seeing a fair bit of demand for options
targeting 100 yen in the next 12 months," said a chief options
trader at an European bank in London. Also, "there is more
demand for 95 yen strikes with a three- to six-month horizon."
While a move to 100 yen would be welcomed by Japanese
exporters, who have for years endured and budgeted for a
stronger yen, it would likely irritate policymakers in
Washington who are pinning their hopes on a weak dollar to
encourage U.S. exports especially to Asia.
A sharp weakening of the yen would also raise eyebrows - and
provoke possible retaliatory measures - in Europe.
Citing pressure on the BOJ, European Central Bank
policymaker Jens Weidmann said on Monday that pressing central
banks to pursue more aggressive monetary policies could risk a
round of competitive devaluations.
The yen's selloff has been broad based. It has fallen to a
20-month low against the euro and a four-year low against the
Australian and New Zealand dollars.
The U.S. dollar, meanwhile has risen more than 15 percent
since October to a two-and-a-half-year peak of 90.25 yen.
"We could certainly see dollar/yen at 100 in the first half
of the year," said Chris Eagle, global head of foreign exchange
at Marex Spectron. "This is a more significant structural change
in Japan though I think the move to 100 yen will be slower than
the move from 80 to 90 yen."
In the options market, demand to hedge against yen weakness
has seen the one-month dollar/yen implied volatility jump to its
highest since August 2011.
One-month risk reversals, a measure of the
relative demand for options on the dollar rising or falling
against the yen, have shown a steady demand to buy yen puts - or
bets it will fall - having flipped from yen calls in November.
Asset managers, macro-fund managers and other long-term
investors have all been selling the yen. Currency speculators,
who are short-term investors, are already running huge bets
against it, making it ripe for a correction as they look to
The yen rose on Tuesday after the Bank of Japan's policy
measures disappointed some who had geared for a more aggressive
easing, but analysts said the bounce would be short-lived.
"The dips in dollar/yen are very shallow which means it is
well supported," said Peter Kinsella, currency strategist at
Commerzbank, who added 100 yen was "imminently possible".
Japan has run current account surpluses - or exported
capital - for years, but recent data suggests this might not be
the case for much longer.
Analysts said conditions outside of Japan also favour a
With waning concerns around the euro zone crisis and global
stock markets rising on brighter growth prospects, investors are
opting out of the low-yielding yen, traditionally sought during
time of financial and economic stress.
Some question whether the dollar's rise to 100 yen will be
quite such a rapid one especially if the BOJ does not ease
policy aggressively enough to beat deflation - having often
fallen short of investors' expectations in the past decade.
"It is one thing pressurising the BOJ to implement a 2
percent inflation target, but it is altogether another thing to
achieve that in reality. We haven't seen such a level on a
sustained basis since the early 1990s," said Lee Hardman,
currency economist at Bank of Tokyo-Mitsubishi.
Some said the 100 yen/dollar mark is what Abe's government
would want to boost exports and foster economic growth but it
might prove to be a bit of struggle getting there.
"Even if this is desirable, it is unlikely that the yen
would weaken beyond 100 yen per dollar and remain at that level
purely based on potential easing by the BOJ," Taisuke Tanaka,
strategist at Deutsche Bank, said in a note.