The yen and pound will decline to almost four-year lows by year-end versus the dollar on speculation new central bankers will favor weaker currencies to encourage economic growth, UBS AG said today in a note to clients.
“A weak yen is a consequence of what Prime Minister Shinzo Abe and the central bank will be pursuing in monetary policy,” Larry Hatheway, one of the authors and chief economist at UBS in London, said in a phone interview. “The challenge for the pound is that the U.K. can’t sustain a recovery.”
The Zurich-based investment bank forecasts Japan’s currency to depreciate to 100 yen per U.S. dollar by the end of 2013, from a previous prediction of 85 yen, and for sterling to fall to $1.41 after an earlier $1.56 estimate. One U.S. dollar last bought 100 yen in April 2009, while one pound was last worth $1.41 in March of that same year.
The projections were changed due to a combination of “domestic monetary policy, official comments seeking lower exchange rates and trade deficits in Japan and the U.K,” wrote the authors.
The yen depreciated 0.6 percent against the greenback to 93.89 at 1:13 p.m. in New York and the pound fell 0.7 percent to $1.5023.
The pound weakened for the first time in three days against the dollar today as 11 of the 39 economists surveyed by Bloomberg predict the Bank of England will increase its asset-purchase target to at least 400 billion pounds ($604 billion) from the current 375 billion pounds at the end of its policy meeting tomorrow.
The change at the top of the central bank, where Bank of Canada Governor Mark Carney will succeed Mervyn King in July, may result in investor concern whether policy makers will change the 2 percent inflation target, causing the pound to weaken further, the authors wrote.
The yen has tumbled 16 percent in the past six months as Japan’s Abe, who took office in December, pushed for “bold monetary policy” to weaken the currency and defeat deflation. New Bank of Japan governor-designate Haruhiko Kuroda may push for more bond purchases when he replaces Governor Masaaki Shirakawa later this month, Hatheway said.