The last quarter of 2019 has been painful for yen bulls, but if history is any guide, good times may be just around the corner.

January has proved to be a favorable month for Japan’s currency, bringing gains against the dollar in seven of the last 10 years. Some Tokyo-based strategists expect a repeat in 2020.

The case for a stronger yen is backed by a seasonal pattern that sees the greenback typically weaken at the start of the year as global investors sell their dollar holdings to make fresh investments overseas, according to Credit Agricole CIB. It expects the dollar to also be pressured by the unwinding of positions by Chinese market players ahead of Lunar New Year holidays.

“The dollar-yen has gained only once since 2014 in January,” said Yuji Saito, executive director at Credit Agricole’s FX department in Tokyo. “Considering this, traders may want to sell the dollar around the end of the year or early next year.”

Flash Crash

Predictions for a rebound come after the yen has been sold off in the lead up to the end of 2019 as improving U.S.-China trade relations, signs of a revival in global manufacturing and a decisive U.K. election result sapped demand for haven assets.

Japan’s is the sole Group-of-10 currency to weaken against the greenback this quarter, having lost 1.3 per cent since Sept. 30 to 109.49 per dollar late in Tokyo on Friday. However, the dollar-yen’s ascent has petered out in recent days amid thinned holiday trading as the pair approaches the psychologically significant 110 level.

“There is nervousness about buying the dollar actively as the yen’s January upswing has been pretty big in recent years,” said Takuya Kanda, general manager at Gaitame.com Research Institute Ltd. in Tokyo. Market participants are also wary given the flash crash episode seen in January this year, he said.

Counter View

Even so, Mizuho Securities Co. sees little chance for the yen to appreciate next month.

The yen’s strength in January in recent years has followed a build-up of short positions toward or above the closely-watched level of 100,000 contracts, but that doesn’t seem to be the case this time, Masafumi Yamamoto and Satoshi Yamauchi, analysts at Mizuho, noted in a report this month.

Net short non-commercial futures positions in the yen totaled 42,062 in the week ended Dec. 17. That compares with 99,089 in the final week of December 2018, 116,086 in 2017 and 87,009 in 2016.

--With assistance from Hiroko Komiya