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Japanese politicians are becoming some somewhat anxious with the rapid fall of USD/JPY. Can this mark a  turnaround in the fate of the currency? Or perhaps a necessary correction?

The team at Credit Agricole weighs in:

Here is their view, courtesy of eFXnews:

In our latest FX Monthly Cease-fire broken we revised our JPY forecasts lower due to stronger than expected political and monetary policy pressures in Japan.

However with the market already at an extreme short JPY position, we think a circuit-breaker could be tripped this week seeing at least a short-term USD/JPY correction towards 116.50.

While the magnitude of such a correction may seem small given the pace of recent USD/JPY gains, we note many buyers are unlikely to wait too long to add to positions given uncertainty surrounding December the elections. As such after this correction, JPY selling should resume seeing USD/JPY rise to our end-of-year 118.0 target.

Note also that while a government debt downgrade remains risk, any rating agency action is unlikely to come before the elections.

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