Yen’s 9% Rebound Seen as Ukraine Buffets Abenomics

The yen’s decline over the past year versus the euro will reverse, trading patterns suggest, as Russian intervention in Ukraine boosts haven demand at the expense of Prime Minister Shinzo Abe’s efforts to spur growth.

Japan’s currency will rally about 9 percent this year to 129 per euro, a level not seen since August, according to HSBC Holdings Plc. Stochastics analysis, which studies the velocity of an asset’s price movement, signals the yen’s losses versus the European currency are becoming excessive after it tumbled 1.6 percent in the past month, the most among 16 major peers.

“It’s hard for the yen to weaken much further because of the uncertainties in some emerging markets,” Ju Wang, a currency strategist in Hong Kong for HSBC, said in a phone interview today. “Because the yen has weakened almost 30 percent since May 2012, it is no longer overvalued.”

The yen is extending last year’s 21 percent decline versus the 18-nation euro, which was its biggest drop since the shared currency’s 1999 debut. The depreciation helped Abe’s economic strategy of monetary easing, fiscal stimulus and structural reform. HSBC’s call for the yen to rally contrasts with a Bloomberg strategist survey, which sees Japan’s currency staying at about 140 per euro for the rest of this year, before weakening to 145 in 2015.

The yen fell 0.3 percent today to 140.96 per euro as of 10:39 a.m. in London. It touched 145.69 on Dec. 27, the weakest level since October 2008.

Central Banks

The yen’s decline accelerated in April as the Bank of Japan initiated unprecedented stimulus to end more than 15 years of deflation. The central bank last month boosted lending programs while sticking with a plan to expand the monetary base by 60 trillion yen ($585 billion) to 70 trillion per year.

The euro has been supported versus the yen over the past month amid the currency region’s economic recovery. That may take pressure off the European Central Bank to add to its own stimulus measures when policy makers meet today.

Fourteen of 54 economists surveyed by Bloomberg News expect ECB President Mario Draghi to cut the benchmark interest rate from a record-low of 0.25 percent today, with the rest expecting no change. The ECB will also release updated projections for euro-area growth and inflation, including forecasts for 2016.

The Frankfurt-based ECB predicted in December that the euro-region economy would expand 1.1 percent this year and 1.5 percent in 2015. It said inflation would average 1.1 percent and 1.3 percent, below the 2 percent target.

Ukraine Uncertainty

“The euro is being capped while uncertainties around Ukraine continue,” Junichi Ishikawa, a Tokyo-based analyst at IG Markets, said by phone today. “I don’t expect any easing from the ECB this time around, but should they signal that low inflation will persist into 2016, that will boost speculation for further easing and see the euro lower.”

A 200-day moving average near 135 per euro would be “pivotal” for the currency pair, Ishikawa said. In that case, the yen would probably test 133.52 in the next six months, which is the 23.6 percent Fibonacci retracement of its depreciation from a July 2012 high of 94.12 to the five-year low of 145.69 reached on Dec. 27, he said. Fibonacci analysis is based on the theory that prices move by certain percentages after reaching a high or low.

Economic Sanctions

European Union leaders will consider repercussions for Russia at an emergency meeting today on Ukraine, after Russia’s foreign minister fended off U.S. efforts to ease tensions in the Crimean peninsula. The U.S. is also threatening Russia with sanctions over its military intervention in Crimea.

Russia has accused the West of supporting a coup against Ukraine’s former president and rejected EU proposals to broker a settlement. Ukraine is a transit point for gas accounting for about 16 percent of European demand.

Using Stochastics, what’s known as the k-line for the euro versus the yen was 82, entering an area that signals its gains were too fast.

“The euro is looking a bit overbought versus the yen,” Pak Lai Ng, a Singapore-based technical analyst at Forecast Pte, said by phone today. “The euro-yen’s recent high just above the 141 level is still difficult to break. I think the pair would be capped under the December high of 145.69 for now.”

The yen may advance to 136.23 in the coming month, the Feb. 4 high, according to Ng.

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