The yen will fall to the lowest level since April 2011 by year-end as the Bank of Japan pumps more currency into markets to revive the world’s third-largest economy, according to Tahan Capital Management Pte.
The Japanese currency may drop to as low as 85 per dollar by Dec. 31 on speculation a new government next month will boost pressure on the central bank to step up its economic stimulus program, said Joseph Lam, Singapore-based co-founder and partner at the hedge fund run by former UBS AG traders. Japan will hold an election on Dec. 16 after Prime Minister Yoshihiko Noda called for a vote on Nov. 14, even as polls showed his Democratic Party of Japan will lose.
“The market is focused on next month’s election to see what kind of pressure they will put on the BOJ,” Lam, 39, said in an interview on Nov. 23. “We see large companies being downgraded and there will be more pressure from the corporates, households and politicians for BOJ to stimulate. We tend to agree the yen will weaken.”
The yen traded at 82 per dollar as of 12:19 p.m. in Tokyo, according to data compiled by Bloomberg. The currency has depreciated 5.9 percent since reaching a seven-month high of 77.13 on Sept. 13. The yen has weakened 11 percent to 106.46 versus the euro from this year’s high of 94.12 on July 24.
The BOJ expanded its asset-purchase program for the fourth time this year on Oct. 30 to 66 trillion yen ($805 billion), having already cut its target interest rate to 0.1 percent. Japan’s gross domestic product shrank at an annual rate of 3.5 percent last quarter. Public approval for Noda’s party fell below 20 percent as it failed to revive growth, end deflation or enact campaign promises on social spending.
A new government may add pressure on the central bank to set a higher inflation target, boost asset purchases, or remove the time-limit on its monetary-stimulus program, said Lam.
“I do see the BOJ becoming more aggressive with the easing,” he said. “We are talking about one of the biggest economies with a long history of easing policy. The policy has not been effective enough to help the economy recover.”
Tahan Capital started its Asian macro and credit strategy fund in September 2009 and currently manages about $500 million, said Lam. It handed investors “in excess of 30 percent net” since inception with low volatility, he said, declining to disclose the fund’s current bets.
The euro will trade near $1.30 in a month, holding its 5.5 percent gain since July, as European leaders strengthen efforts to contain their region’s fiscal crisis and on optimism U.S. policy makers will resolve a budget deadlock involving $607 billion of automatic spending cuts and tax increases, said Lam.
“We expect it would not take extremely long for the U.S. to resolve the issue such that the economy deteriorates in that time,” he said. “Therefore, there is room for the market to be more optimistic than it is now.”