Regime shift for the JPY?

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One swallow does not make a summer, but the price action in USDJPY would suggest that the Japanese currency might be shaking off its safe-haven credentials.

Indeed, USDJPY traded higher last week as investors turned risk averse on stocks and commodities.

USDJPY unaffected by drop in S&P500 

 Source: Bloomberg
Nomura says a break in correlation like that is the “stuff that makes a trend possible”. The Japanese bank also points to weakening Japanese trade data – exports to China dropped sharply in September as the territorial dispute with Beijing over a group of islands in the East China Sea intensified – and positioning as further reasons to expect USDJPY to trade higher. Positioning data from the Chicago Mercantile Exchange show speculators retreated from long positions in the JPY for the second consecutive week, taking their bets on further appreciation in the Japanese currency to the lowest level since mid-July.

IMM - JPY non-commercial positions

Source: CFTC, Nomura 
Jens Nordvig, global head of FX strategy at Nomura, says a break to the topside in USDJPY is getting more likely. He believes USDJPY will break Y80 in the fourth quarter, and hit Y83 in the first quarter of 2013. Nomura’s $100 million model portfolio is long $10 million USDJPY around Y78.80, with a stop loss at Y77.00 and a target of Y82.00. “We will look to add to this position as opportunities arise,” says Nordvig.