We think that USD/JPY will correct before trading significantly higher. The correction will be swift and fast, with most of the market participants not expecting it to happen.
We are forecasting USD/JPY to pullback and trade in the 94.50-98.50 range temporarily. The pair will be aggressively bought at these levels, and will at least challenge the previous highs after that. More than likely USD/JPY will continue higher after the pullback and challenge 110-115 area.
 The following factors may contribute to the USD/JPY volatility in 2014:
1. Geo-political situation in the region
The escalating tensions between Japan and China over the disputed Islands may potentially lead to an armed conflict.
2. Japanese politics
Shinzo Abe already served as Japanese prime minister in September 2006, and resigned in 2007. Since that time Japan had five prime ministers, and Abe is the 6th prime minister to serve since his resignation. A recent survey by national broadcaster NHK showed a significant decline in approval ratings for Abe’s cabinet. The fall of approval ratings from 60% to 50% is very significant sign, and it signals a growing public disapproval of the ruling coalition. Political instability in Japan will lead to Yen’s volatility.
3. Natural disasters
Throughout the World’s history Japan was always one of the countries affected the most by natural disasters. Indeed two of the most costly natural disasters in human history took place in Japan: 2011 Earthquake and tsunami (estimated cost $235 billion), and 1995 Kobe Earthquake (estimated cost $100 billion). The Yen usually often appreciates after natural disasters.
4. Sales tax hike
The consumption tax will be raised from 5% to 8% on April 1st, 2014. Most economists agree that the tax hike will undermine economic growth at least temporarily. Japan was  unable to increase the consumption tax for various reasons since 1997. Last time the tax increased from 3% to 5% in May of 1997.
