Reasons to expect further yen weakness

An influential aide to Shinzo Abe on Monday said the yen's appropriate value to the dollar was Y105. Yet there are a number of factors that point to a burst higher for the buck.

First, market positioning. New data from US futures regulators show net short speculative yen positions near the lowest in two-and-a-half years.

Adam Cole, head of G10 FX strategy at RBC Capital, notes that net shorts in the previous week hit the lowest since the Abe government was elected.

"The long-term capital outflow story is, however, in full swing with Y400bn a week going into foreign stocks," he adds.

"If this flow has been offset by leveraged shorts unwinding, and leveraged positioning is now back to neutral, the balance of risk has to favour JPY downside."

Another argument for a weaker yen is that the market seems to be betting on more stimulus in China.

This would boost traders' risk appetite. The yen, for all its weakness in recent years, is still treated as a haven currency by many, so such broad investor confidence would provide additional pressure to the Japanese unit, the reasoning goes.

Meanwhile, the broader dollar uptrend seems to have resumed after a short hiatus, with the dollar index again looking to the 12-year highs touched in March.

Finally, from a chartist's perspective the USDJPY cross sits nicely above its 50, 100 and 200-day averages yet is neutral in terms of its 14-day relative strength index.

It looks poised.

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