(Financial Times) -- Ever since the yen started to strengthen after the Lehman crisis, policy makers in Japan have blamed "speculators" for driving the currency higher than where it really should be.
Whether that is fair or not, it should be encouraging for the mandarins in Tokyo's administrative district of Kasumigaseki that the recent weakening of the yen -- the dollar/yen rate moving to Y80 and breaking out of the narrow range around Y78.50 it has held since the summer -- has not been led by speculative investors.
Hedge funds have played a part in the recent weakening of the yen, which has completed three weeks of decline against the dollar on generally brighter economic data around the world. Currency traders say it has been one of the few conviction trades among speculators as the wider forex market has struggled to find direction.
Indeed, figures from the US Commodity Futures Trading Commission show that speculators doubled their short yen positions last week, after turning bearish on the currency for the first time since May in the previous week.
But hedge fund positioning is lighter than it was, according to Morgan Stanley's positioning index, which tracks the activities of a variety of short-term traders.
"Dollar/yen positioning has been moderate, so far," says Ian Stannard, head of European foreign exchange strategy at Morgan Stanley in London. "That suggests that fallback should be quite limited, if this [dollar] rebound unravels."
For now, most observers are wary of calling an end to the endaka -- the period of yen strength -- that has blighted exporters such as Sharp and Panasonic while deepening the deflationary malaise at home. They note, for instance, that foreign investors are still buoying the yen by parking funds in Japan's government bond markets, lured by stable prices and high inflation-adjusted yields.
But many say that the 3 per cent climb in the dollar/yen rate since the beginning of October feels different from the last rise in February, touched off by the Bank of Japan's announcement of a 1 per cent "goal" for inflation, and rapidly undone by fresh concerns over global growth.
The latest bout of yen weakness has three distinguishing features, analysts say.
First is the growing disparity between the world's largest and third-largest economies. While recent data from the US have been mostly encouraging, the opposite applies in Japan.
This week the Japanese government said that nine of its 11 main economic indicators deteriorated in September amid a sharp slowdown in industrial production, signalling a "possible turning point" into contraction. This marks the seventh time the government has used such language since 1986. After four of the previous six occasions, Japan did indeed end up in recession.
If the economy starts shrinking once more, "the BoJ's inflation goal will move further and further out," says Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo. "It will need to ease further."
Second, investors sense that the BoJ's commitment to stimulus has moved up a notch. At its last policy meeting, the BoJ added to its asset-purchasing programme and unveiled a scheme to supply commercial banks with unlimited low-interest loans.
Perhaps the most significant feature of the easing package, however, was the signature of governor Masaaki Shirakawa alongside those of two government ministers on a statement affirming a commitment to "work together" to generate inflation.
In recent years politicians across the spectrum have repeatedly accused the BoJ of not doing enough to overcome Japan's persistent state of mild deflation. The key implication of the statement is "a formal tightening of the government's grip" on the BoJ, says Naohiko Baba, chief economist at Goldman Sachs in Tokyo.
The third factor is the imminent changing of the guard at the central bank. As Mr Shirakawa's term comes to an end in April, investors are beginning to weigh the policy bias of his likely successor.
By law, the governor and his deputies are appointed by the government, subject to the approval of both houses of parliament. But whether the Democratic Party of Japan is still in power, or if the main opposition Liberal Democrat Party has toppled it, the next governor seems likely to have a more dovish bent than his predecessor, says Mansoor Mohi-uddin, chief currency strategist at UBS in Singapore.
Frontrunners include Toshiro Muto, a former deputy governor and career finance-ministry bureaucrat, and Kazumasa Iwata, another ex-deputy governor now running a research institute.
Either might provide less resistance to LDP head Shinzo Abe -- in pole position to become Japan's next prime minister -- who has called for an inflation target of between 2 and 3 per cent.
That is why the yen appeared to shrug off the defeat in the US presidential election for Mitt Romney, who was seen as more inclined to challenge the Federal Reserve's continued commitment to monetary easing.
What is missing is a steady move higher in US bond yields. The "best signal" for the dollar/yen rate is still the gap between yields on two-year Treasuries and two-year JGBs, notes Taisuke Tanaka, FX strategist at Deutsche Bank. At about 17 basis points now, the gap is little changed from the average over the past 12 months, suggesting that further moves lower in the yen may be limited.
For now, though, the leisurely pace of the depreciation gives analysts such as Mr Stannard of Morgan Stanley "comfort" that "this is a sustainable move".
© The Financial Times Limited 2015