LONDON: A combination of economics, geopolitics and portfolio adjustments are likely to trigger a renewed slide in the yen after the beginning of Japan's new financial year on April 1.
On the economic policy front, Prime Minister Shinzo Abe's "Three Arrow" policy quiver to promote growth argues for a further slide in the yen, which has already hit a 33-month low against the dollar on Thursday.
The first arrow in this quiver, additional stimulus spending, has already begun its flight, with expansionary budget plans approved by the Japanese parliament.
The second arrow is very accommodative monetary policy and has been outlined by Haruhiko Kuroda, the Japanese government's nominee as the next governor of the Bank of Japan (BoJ).
Kuroda on Monday laid out a set of policy options that included huge purchases of longer-dated government bonds and bringing forward open-ended asset purchases.
If appointed, Kuroda may implement some measures as soon as April 3-4, when the Bank of Japan holds its next policy meeting.
The third arrow, intended to open up Japan's economy, may also be let loose with the Japanese media reporting that Abe will make a decision in the coming weeks on whether to join talks on the free trade Trans-Pacific Partnership (TPP).
Japan's biggest business group, the Keidanren, has lobbied hard for Japanese membership of the TPP, saying a failure to join would risk exporters falling further behind regional rivals.
Geopolitics may tempt Abe to enter talks. While Japan's farmers might fear the opening up of the country's agricultural markets, Abe has much to gain from agreeing to TPP talks.
The United States would like Japan to join the TPP negotiations, and might prove more tolerant of further yen depreciation if Japan takes part in the talks.
The United States may also have another reason to show forbearance towards a weaker yen.
China on Tuesday unveiled another double-digit rise in military expenditure, with spending on the country's People's Liberation Army (PLA) set to rise 10.7 percent to 740.6 billion yuan ($119 billion) in 2013.
By contrast, the US budget sequester has forced automatic spending cuts which have hit the US military.
The US government is therefore likely to back Japanese policies that offer the possibility that Japan, a regional counterweight to Chinese strength, regains its economic poise.
Finally, there is the chance that Japanese investors will start seeking higher returns overseas in April given the fall in Japanese government bond yields.
For example, the yield on 20-year Japanese government bonds on Tuesday fell as low as 1.45 percent, its lowest since 2003.
Japan's Government Pension Investment Fund (GPIF), the world's biggest public pension fund, may have recorded investment gains of $56 billion in October-December, its second
best quarter on record, on the back of gains in domestic equities, but it could tweak its portfolio allocation model.
With its investments mostly held in Japanese government bonds, the GPIF will review its long-term investment target and portfolio allocation model around April.
That might mean an increase in offshore investments, which would imply sales of yen.
The stars may therefore be aligning for the dollar to rise to 95 yen in April. A break above this would then open up the possibility of a move to 100 yen by the end of June.
— Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own.
