-BoJ positioned to devaluate the Yen further
-Growth in Japan continues stagnate
-US Dollar and British Pound policies are changing
The Japanese Yen was without question one of the best trades of the year, and indeed I had the fortune to make it my focus from very early on. Why might it continue to make sense to sell the Japanese Yen? Put simply: currency wars.
The Government of Japan and the central Bank of Japan (BoJ) show every intention to continue a weak Japanese Yen policy, and they're in a unique position of having plenty of ammunition left in potential easing.
For starters Japanese economic growth is still tepid at best, while domestic inflation remains controlled. Public debt is likewise a major reason that the BoJ and the Japanese Government will keep its finger on the 'trigger' of further easing. Extraordinarily large public debt mean that central bank bond buying will be too difficult to resist. Politicians will keep pressure on the central bank to continue buying Japanese Government Bonds.
So where are the trades? I like the US Dollar and British Pound versus the Yen. The case for the Greenback is simple: the US Federal Reserve will need to start the so-called "Taper" of its Quantitative Easing policies in the New Year. The British Pound could see similar support as the Bank of England pulls back policy easing.
The New Zealand Dollar could work as an anti-yen trade as the Reserve Bank of New Zealand has made it clear it will raise rates in the coming two years. Yet clear headwinds from falling commodity prices limit its long-term attractiveness, and we'll need to see a secular shift in commodity markets to put the NZDJPY into play.
A Japanese Yen short position was one of the top trades in 2013, and I believe it will continue to be a source of 'alpha' for the professional trading community in 2014.