2013 was the worst year for the Japanese Yen in more than a decade. The currency lost over 20% of its value against the U.S. dollar, euro and British pound and as much as 18% against the commodity currencies. Taking a look at the continuous rise in USD/JPY today and its proximity to 105, it is almost hard to believe that on January 1st, it was trading at 86. The first phase of USD/JPY strength was driven by the aggressive $1.4 trillion stimulus program announced by the Bank of Japan on April 4th. This 12% move lasted between April and May but faded quickly when JGB yields started to rise and short Yen traders bailed out of their speculative positions. After a deep sell-off that erased nearly all of the gains, USD/JPY along with all other Yen pairs consolidated for the next 6 months. It wasn't until late November that the rally took off once again but this time, the move was triggered by expectations for Fed tapering. Looking ahead, long USD/JPY is widely expected one of the most popular trades of 2014 thanks to the combination of easier monetary policy from the Bank of Japan and a continued reduction in asset purchases by the Fed. However while a break of 105 is a given, it will not be a smooth sail to 110 for USD/JPY.
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