Weekly Review

Among the major pairs, the USD/JPY had the best performance in 2012. The pair raged 12%. The pair started the year at 76.60, whereas now it is trading above 86.00. JP Morgan said they forecast the pair will reach 90.00 level in 2013.

Among the major crosses, the EUR/JPY and AUD/JPY raged around 14%, and the GBP/JPY fared even better with above 16% rise.

If we include NZD in the majors, the NZD/USD had the second best performance, shooting up almost 6%. This means that the best major JPY pair in 2012 was the NZD/JPY with an impressive 18% surge.

The main reason behind the plummet of the yen is one man: Shinzo Abe. Shinzo is the new prime minister of Japan. He came to power after early elections in the Asian giant.

Shinzo pledged to lower the JPY in order to revive Japanese export. His way to achieve this is by monetary easing, namely printing new money. He also wants to increase inflation target of the Bank of Japan to 2%. What stands in his way is the same Bank of Japan, which is protesting against intervention in its monetary policy. Abe said he would change the law that guarantees the independence of the central bank in Japan, unless they do what he pleases. Luckily for Abe, the governor of the BOJ leaves in April 2013 after 5 years in duty. The governor’s two deputies leave in March. Until then, the sides will probably fight. This very fight will probably define the medium term future of the JPY in 2013. As long as Abe is determined to achieve his goals, the JPY’s crush should continue well into 2013.

Shinzo already was PM in 2007. Back then optimism among Japanese manufacturers was near a 16-year high. Now he must revive their sentiment in order to help the ailing Japanese economy as earnings reports by companies in the Nikkei in the July- September period showed an aggregate 26 percent year on year decline in net income, according to data compiled by Bloomberg.

The economy in Japan shrank in the last two quarters, meeting the textbook definition of a recession. This is why Abe is so aggressive, trying to improve the situation. Let’s wish him good luck.