The euro will surge to a six-year high against the yen by the end of 2014 as the European Central Bank isn’t printing money as fast as the Bank of Japan, according to Daiwa Securities Co.
The CHART OF THE DAY shows the ratio of Japan’s monetary base to Europe’s jumping to a record. Japanese traders and investors refer to this gauge as a “Soros Chart,” after billionaire investor George Soros correctly predicted in the 1990s that the yen would weaken because of Japan’s burgeoning money supply. Also tracked are the euro, which recently traded at 137 yen, up 46 percent since July 2012, and the slowing inflation rate in the 18 nations sharing the common currency.
“Europe’s monetary base continues to be significantly smaller because even as the ECB eases, it’s not buying assets like the BOJ,” said Yuji Kameoka, chief currency strategist in Tokyo at Daiwa Securities. His forecast the euro will approach 147 yen, the most since October 2008, is more bullish than the 139 yen median estimate of analysts in a Bloomberg News survey.
The ECB last month introduced unprecedented stimulus measures to revive inflation, which has held below 1 percent for the past nine months, less than half the central bank’s goal. The euro has risen 15 percent to 137.18 yen since the BOJ announced in April 2013 plans to increase the supply of money by as much as 70 trillion yen ($690 billion) annually.
In a January 1996 seminar in Tokyo, Soros said the yen would weaken for two years due to its increasing supply. Japan’s currency dropped 26 percent in the following 2 1/2 years. Soros ranked as the world’s 23rd richest person through yesterday, according to the Bloomberg Billionares Index.