Looking ahead

Over the next several months, “there is a compelling case for yen appreciation,” IDEAglobal’s Callow says. “The recovery is real, which encourages foreign money investment and encourages the Japanese to keep their money at home.”

Nonetheless, looking at the recent range trade, Callow added, “those of us who have been waiting for the next leg lower in dollar/yen are getting a little impatient.”

Callow still expects the dollar/yen spread to move back toward the 106 region, perhaps by year-end, based on these factors and the strong existing account surplus.

On the upside, the 114/115 zone is seen as good resistance.

“There would be a lot of people looking to sell,” Callow says. “It is difficult to see it setting a new high for the year.”

A key factor on the horizon for currency traders is the upcoming G-7 meeting, set to begin in Washington D.C. on Oct. 1.

“If any change comes out of that it will likely result in a weaker dollar and stronger Asian currencies,” Callow says.

BNP Paribas’ Lynch favors more dramatic yen appreciation, in both the intermediate- and long-term. He pointed to the 105 area as a third quarter target, and a break of 100 to 98 by the end of the fourth quarter.