Yen Estimates Rise Fastest of Peers as BOJ Bets Wilt

Strategists are raising their yen forecasts at the fastest pace among major currencies on speculation the Bank of Japan will delay extending its monetary stimulus program until next year at the earliest.

While still anticipating a decline, the median year-end estimate has risen to 105 per dollar as of yesterday from 109 on May 7, data compiled by Bloomberg show. The yen has strengthened 3.4 percent in 2014 to 101.88 per dollar at 12:21 p.m. in New York, after tumbling 18 percent last year when BOJ Governor Haruhiko Kuroda flooded markets with cash to stave off deflation, debasing the currency in the process.

Kuroda damped speculation there will be a second phase to the central bank’s 60 trillion yen ($589 billion) to 70 trillion yen of annual asset purchases in a speech on Aug. 1, saying the BOJ is poised to achieve its target of 2 percent inflation and the economy is recovering. While BOJ officials cited “some weakness” in exports and production at a meeting today, they kept monetary policy unchanged.

“This type of influence from the Bank of Japan, which could actually lead the yen to keep weakening, isn’t in the cards,” Paul Mackel, the head of Asian currency research at HSBC Holdings Plc in Hong Kong, said by phone on Aug. 5. “That undermines one of the key reasons” for investors to bet on yen weakness, he said.

Stronger Forecast

Of the 61 participants in Bloomberg’s yen survey, HSBC and five others predict an advance in the remainder of the year. The London-based bank predicts it will appreciate to 101 per dollar by the end of December and 99 by the end of March, and sees no additional easing from Japan’s central bank this year.

The BOJ’s decision to refrain from extending stimulus today was predicted by all 34 economists in another Bloomberg survey published Aug. 5. About 65 percent said they expect no change this year, up from 62 percent last month and 42 percent in a June survey. Of all the respondents in this month’s survey, 32 percent saw no more additional easing.

The yen has risen against all but one of its 31 most-traded peers in 2014, and climbed 4.8 percent versus a basket of nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It’s poised for the first annual advance against the dollar since 2011, after tumbling last year by the most in more than three decades.

Yen Haven

The gains have been spurred by traders seeking out the yen -- a traditional haven in times of conflict because of the nation’s trade position -- amid rising tensions in Ukraine and Gaza, according to Jens Nordvig, managing director of currency research at Nomura Holdings Inc. in New York.

That tendency for the yen to gain should be weighed against the depreciating effects of a likely early increase in U.S. interest rates, he said. Futures show traders don’t expect the Federal Reserve to raise its benchmark until mid-2015.

“Last week, we had a test of 103 in dollar-yen that came on the back of better U.S. data, and then we traded back below 102 on the back of the risk aversion that was related to Russia, Ukraine,” Nordvig said yesterday by phone. Also, “we’ve obviously had some disappointment on when is the BOJ going to deliver more,” he said.

Barclays Plc foresees no new stimulus measures this year and says Japan’s currency will be supported by improvements in the economy. It predicts the yen will be little changed at 102 in six months, before climbing to 98 later in 2015.

‘Healthy Level’

“You’d expect monetary policy to play less of a role in the currency in an economy where you have inflation moving toward the target and growth at a more healthy level than it’s been previously,” Hamish Pepper, a foreign-exchange strategist at Barclays in Singapore, said by phone on Aug. 4.

Citigroup Inc., the world’s biggest currency trader, is bearish on the yen, predicting a decline to 106 by year-end and 108 by March.

“There’s still much progress to be made if Japan’s going to achieve its inflation target,” Todd Elmer, a Singapore-based strategist at Citigroup, said by phone on Aug. 4. The BOJ may extend monetary easing in October, Elmer said.

Japan’s core consumer prices increased an annual 1.3 percent in June, stripping out the effects of an increase to the nation’s sales tax, according to the BOJ. The central bank had estimated the higher levy would push costs up by about two percentage points.

‘Lousy Numbers’

In his speech in Tokyo last week, Kuroda shrugged off concern the yen’s gains would make it more difficult for inflation to accelerate, saying the BOJ’s target may be reached in the next fiscal year.

The economy is expected to expand “above its potential,” Kuroda said, echoing a June 9 report showing growth at an annualized 6.7 percent in the first quarter, up from 0.3 percent in the prior period. He said a decline in exports was due to “cyclical factors” and investment was improving.

“It’ll be a while before they’d actually change their view,” said Sean Callow, a strategist at Westpac Banking Corp. in Sydney. “They would have to see some pretty lousy numbers to change their tone,” he said by phone on Aug. 6. Westpac sees the yen at 100 per dollar by year-end, Callow said today.

Before it's here, it's on the Bloomberg Terminal.