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Flash: Yen weakness still reiterated despite strong resurgence yesterday – UBS

FXstreet.com (Barcelona) - Japanese equities continue to trade nervously after yesterday's -7.3% plunge on record volumes, while the USD/JPY continues to look somewhat fragile.

According to Research Analyst Gareth Berry at UBS, “We see no reason to change our core FX views however. Long equity positions from foreigners in particular had become severely extended so, if anything, this represents a healthy and long overdue correction after cumulative gains of 75% since November. We still see yen weakness ahead and look for USD/JPY to reach 110 by end-2013.”

Yesterday's price action does shed some light on the nature of the relationship between the yen and stocks however. Since November, both have moved in lockstep. Crucially though the yen has been the fundamental driver and the Nikkei has blindly followed. A weaker yen boosts the corporate profits of Japanese exporters and that dictates the direction of causality.

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