RBS Analyst Who Got Yen Right Tells Split Investors It's Peaked

  • Bank sees yen weakening to 115-120 per dollar range in 2Q
  • Mohi-uddin recommends buying greenback after next BOJ review

The Royal Bank of Scotland Group Plc strategist who correctly predicted the yen would strengthen is telling investors betting on further gains that the rally has run out of steam.

The lender’s clients in Europe are now divided on the outlook for the yen as the currency struggles to extend February’s 7.5 percent advance, according to Mansoor Mohi-uddin, RBS’s Singapore-based senior markets strategist, who said in October the Bank of Japan’s pledge to expand the monetary base would boost the currency. The yen has weakened 0.7 percent versus the dollar in March following its best month since the financial crisis in 2008 after the central bank shocked markets with its negative interest-rate policy.

“Some investors think the BOJ’s easing options are running out, so are betting on further yen strength; others think the central bank will cut the deposit rate again to weaken the yen,” Mohi-uddin, who visited clients in the U.K. and Switzerland last week, said in an interview Friday. “Having been constructive on the yen for the last few months, I think dollar-yen will now bottom.”

The yen fell 0.2 percent to 113.41 per dollar at 3:08 p.m. in Tokyo. It has advanced 6 percent against the dollar this year, outperforming its Group-of-10 peers, as Japan’s current-account surplus made it attractive for investors seeking a haven from market turmoil. It reached a 15-month high of 110.99 on Feb. 11, less than two weeks after the BOJ’s decision to embrace negative rates.

Yen Forecast

The currency is set to weaken and trade between 115 and 120 per dollar in the second quarter, the RBS strategist predicted. The BOJ will likely keep its policy unchanged on March 15 and probably ease on April 28, a day after the Federal Reserve concludes its review, Mohi-uddin said. Investors should buy the dollar against the yen if the U.S. currency declines after next week’s BOJ meeting in Tokyo, he said.

The median of more than 60 estimates compiled by Bloomberg calls for the yen to slump to 118 per dollar by the end of June, and to 121 by year-end. The new negative rate is the most likely tool for any stimulus expansion, with a majority of economists in a Bloomberg survey forecasting additional easing by July.

“The market thought the BOJ was being too timid,” Mohi-uddin said. “We said sell dollar-yen after the meeting, but think it’s risky to underestimate how aggressive the BOJ will be this year.”

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