The yen will decline to 130 per dollar within two years as foreign investment in Japanese bonds wanes amid a climbing rate of inflation, according to John Taylor of FX Concepts LLC.
It is unclear what Bank of Japan policies will be once the country achieves its current goal of 2 percent inflation, said Taylor, the founder and chief executive officer of currency-hedge fund FX Concepts LLC. European and American investors will be hesitant to purchase 10-year Japanese government bonds at that point, leaving the country to rely on domestic demand, he said. The last time the yen traded at 130 was 2002.
“The government still needs to borrow, and if Japanese 10-year interest rates go up, that’s going to ruin the Japanese government financial situation,” Taylor said in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua and Guy Johnson.
Japan’s currency appreciated 0.2 percent to 98.83 per dollar at 11:34 a.m. in New York after climbing to 98.58, its strongest level in almost a week. The yen decreased 0.6 percent to 130.23 per euro.
The yen may take until August to weaken below 100 per dollar, according to Taylor, a level unseen since 2009. The global economy may experience a dip in the third quarter, something that is “usually good for Japan and the yen strengthening,” he said.
Japan’s monetary policy, aimed at reaching 2 percent inflation in two years, has weakened the yen 12 percent in 2013, the most out of 31 major currencies tracked by Bloomberg.
Group of 20 finance chiefs and central bankers meeting on April 19 praised the measures taken by the BOJ this month aimed at boosting economic growth. The BOJ maintained a pledge to double its monetary base, but didn’t outline any additional measures to meet its inflation target in an April 26 statement.
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