Forex Flash: Yen down 6% on LDP expectations – Goldman Sachs

FXstreet.com (Barcelona) - Goldman Sachs analysts note that Yen is down 6% on USD since late September on the back of speculation that the LDP will win the election on December 16th and that LDP leader Mr. Abe will increase policy pressure on the BoJ.

Mr. Abe has been very vocal in his thoughts about BoJ policy and achieving a weaker Yen. As a result, the team note that Yen short positioning has built up considerably in recent weeks. They believe that many of the drivers of Yen strength are still in place and that the currency could still strengthen further from here.

They state that, "One of the motivations for our bearish dollar views, including against the yen, is that the implementation of unconventional monetary easing by the Fed is more credible than elsewhere." They believe that the extension of these unconventional policy measures to open-ended asset purchases by the Fed, along with the fact that Japan continues to run a more positive external balance that the US, causes them to remain sceptical of the recent Yen weakness.

They believe that further reserve diversification into the Yen would also be supportive, as would a renewed deterioration in the European situation or increased tensions caused by the US fiscal cliff negotiations.