LONDON: The possible appointment of Asian Development Bank President Haruhiko Kuroda — an advocate of aggressive monetary easing — as Bank of Japan head is not the only reason to envisage the yen staying weak against the dollar.
Japan's currency hit a 33-month low of 94.77 to the dollar on Monday after sources said Kuroda was likely to be nominated to take the helm at the central bank.
On a practical level, while dollar selling intended to prevent the breach of option barriers in dollar/yen at 95.00 remains intact, as many of those options are said not to be due to expire before the last week of March, they remain vulnerable to a renewed yen slide.
Any formal announcement of Kuroda's nomination might prove the trigger for a renewed push to 95.00.
Traders might also reflect on the fact that Japanese Prime Minister Shinzo Abe exuded self-confidence after his meeting on Friday with US President Barack Obama.
"I am back and so is Japan," said Abe on Friday, not the sort of phraseology that might be expected if Japan's economic policies, often referred to as "Abenomics", had met a chilly response from the US president.
Abe said Obama welcomed his economic policy.
Japan's Deputy Chief Cabinet Secretary, Katsunobu Kato, said the two leaders did not discuss currencies — viewed as a sign that Washington does not oppose "Abenomics" despite concern Japan is deliberately weakening its currency.
Perhaps significantly, the two countries agreed on language aimed at giving Abe political cover to bring Japan into talks on a US-led free trade agreement in the Asia Pacific region.
Given that Japanese farmers, historically a bulwark of support for Abe's Liberal Democratic Party, have long enjoyed high tariff protections and are thus opposed to Tokyo entering the talks, getting Abe to engage in such talks is arguably a big
plus for the United States.
Perhaps the possibility that Japan might join the proposed Trans Pacific Partnership, a grouping that would currently not include China, is a prize valuable enough for the United States to be more tolerant towards "Abenomics" and the weaker yen.
Abe also promised to "bring back a strong Japan," a prospect that would appeal in Washington given that the United States would like to see its Japanese ally as a counterweight to the growing footprint of China in Asia.
Budget uncertainties have already caused the United States, on Feb. 7, to announce the delay of a deployment of an aircraft carrier strike group to the Middle East.
With voter support for Abe rising to 70 percent or more in two weekend opinion polls, there is also no discernible domestic disquiet with his economic policies.
"Abenomically" and geopolitically, the signs are that a weakening yen remains a fixture of the foreign exchange market.
— Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own.