The JPY got quite a jolt with the sudden advent of snap elections and firebrand rhetoric against the strong JPY from the incoming LDP Prime Minister Shinzo Abe in Q4 of 2012. The JPY weakening move could deepen a bit in Q1 as an Abe government moves to act on measures aimed to weaken the JPY and as speculation of less Bank of Japan independence grows because a new appointee will assume its helm in April. But in our scenario of a return of volatility, we could see a more two-way market for the Japanese currency in Q1 as the currency is unlikely to weaken in a straight line – particularly against the normally pro-risk currencies. Remember that Japan has an enormous accumulated external investment position of USD 3 trillion, even if its terms of trade have moved into deficit recently and are likely to continue to deteriorate. Still, longer term, the public debt overhang, Japan’s demographics, and weakening sovereign debt markets will encourage a weaker JPY.