He believes that it has likely resulted in heavy Yen selling by speculators despite the latest IMM positioning report being delayed due to Thanksgiving celebrations in the US. Hardman notes that in percentage terms, the scale of Yen´s decline on a nominal trade-weighted basis following the announcement of Japanese parliamentary elections in the middle of the months has not been exceeded since March/April 2011, leaving the market wary that crowded short Yen positioning leaves it vulnerable to a near term correction.
He highlights that the main trigger for Yen weakness was heightened expectation that the BoJ will take a more aggressive monetary easing stance following the upcoming elections. Public opinion polls today indicate that the LDP are still in line to win the election with on average 24% of the vote whilst the current government is languishing well behind at around 11%.
Hardman feels that they key to Yen direction looking forward will be whether those expectations of more aggressive easing from the BoJ are met. He doesn´t believe that there will be a significant policy shift until Governor Shirakawa´s tenure of the bank ends in April 2013, which may encourage speculative shorts to pare positions in the mean time.
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