Week in FX Asia – A Yen to do something?

This weekend's Cypriot event risk scenario has encouraged most traders to be more cautious. Very few have the stomach to buck the trend so late in the game. Many are doing so by reversing the bets that were strapped on during more optimistic times and this includes the "lemming" short yen trade, the trade that has the yen weakening about -20% against the dollar since last September.

The currency from the "rising sun" initially slid as Shinzo Abe campaigned for prime minister with a promise that he would rescue Japan from its prolonged bout of deflation. He is to achieve this by having the BoJ target +2% inflation. By doubling the previous inflation target, the market got swept along with an aggressive easing in monetary policy and comfortably sold yen amongst the crosses.

Fast-forward a few months; the BoJ has a new governor, Haruhiko Kuroda, who took the reins earlier this week, a long-time advocate of an inflation target and easier Japanese monetary policy. The...