Bank of Japan Easing to Make Yen `Worst' Currency, Morgan Stanley Says
The yen is likely to fall because the Bank of Japan will probably take more monetary easing measures and investor concerns over the government’s fiscal policies may increase, according to Morgan Stanley.
BOJ Governor Masaaki Shirakawa said yesterday worsening growth prospects in Japan are causing deflation to continue and said monetary policy plays a large role in fighting persistent price declines. Moody’s Investors Service on Feb. 22 reduced Japan’s debt rating outlook on concern political gridlock will constrain efforts to tackle debt that is poised to exceed twice the size of gross domestic product.
“We see the BOJ easing this year,” said Emma Lawson, a Hong Kong-based currency strategist at Morgan Stanley, in an interview at a Euromoney conference in Singapore yesterday. “In that regard, the market is likely to return to using the yen as a funding currency.”
The yen traded at 81.86 per dollar as of 9:15 a.m. in Tokyo from 81.87 in New York yesterday, when it touched 81.57, the strongest since Feb. 4. It was at 113.45 per euro from 113.52. Japan’s currency has weakened 0.9 percent versus the dollar and 4.3 percent against the euro this year.
Morgan Stanley forecasts the yen to weaken to 93 per dollar and to 115 per euro by the end of this year, according to a research note dated Feb. 24. The yen will probably decline to 89 per dollar and to 118 per euro by year-end, according to median estimates of analysts surveyed by Bloomberg News.
BOJ, Politics
The BOJ has pledged to hold its benchmark interest rate in a range of zero to 0.1 percent until it can expect stable price gains, which board members see at about 1 percent. Japanese consumer prices excluding fresh food fell for a 23rd straight month in January, falling 0.2 percent from a year earlier, according to government data on Feb. 25.
By contrast, Australia’s benchmark rate is at 4.75 percent and New Zealand’s rate is at 3 percent. In so-called carry trades, investors borrow in countries with low interest rates and invest in others with higher returns.
“If you’re looking at which are going to be the worst- performing currencies, it’s the Japanese yen,” Lawson said.
Japan’s lower house of parliament approved Prime Minister Naoto Kan’s record 92.4 trillion yen ($1.1 trillion) budget on March 1 amid fighting over related legislation to finance the world’s largest public debt.
Kan has been unable to persuade opposition lawmakers to authorize 44.3 trillion yen in government bonds to help fund the budget, a measure that must be approved by the lower and upper houses. The stalemate has increased the likelihood of a snap election and Kan’s popularity is plummeting amid dissent within his Democratic Party of Japan.
“At the moment, there’s some political unease, so the market might start to look for premia for the fiscal policies of the government, so we’re looking for the yen to underperform,” Morgan Stanley’s Lawson said.
Five-year credit-default swaps on Japan’s government bonds rose to 79.91 in New York yesterday from 79.87 on March 1, according to CMA prices. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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