Position adjustment is likely to weigh on USD/JPY this year before growing risk appetite weakens the yen in the year to come nL2N28005I.
Traders recently placed a large bet on USD/JPY rising and the chance that some of it will be reduced before this year ends is high.
The entire $4 billion bet has been established in five weeks.
The likely short-term nature of the betting heightens the chance some of it's pared before the year ends.
USD/JPY has been trading above 108.00 while these bets were being established, so they have little insulation should USD/JPY drop.
That said, it's clear that risk taking in broader financial markets is running hot, with stocks rallying and major markets reaching record highs.
That will undoubtedly rub off on currency traders.
FX volatility is low, which will support carry trades nL2N28005Z.
Next year, the yen is likely to be sold to fund those trades.
A thick and rising daily Ichimoku cloud 107.71-106.68 should underpin USD/JPY.