Yen Ultra-Bear Standard Chartered Sees 105 as Intervention Zone

  • Robertsen expects `aggressive' easing from Kuroda this month
  • Bank predicts yen will fall to 125 per dollar by end September

Standard Chartered Plc is keeping faith in the power of Japanese authorities to drive the yen back toward a 13-year low against the dollar -- and says currency intervention may be imminent.

“They’re close,” Eric Robertsen, the bank’s Singapore-based head of global macro strategy and foreign-exchange research, said in an interview in Tokyo Wednesday. “I would suggest that anything closer to 105 would bring a response.”

The yen advanced to 107.63 per dollar this week, the strongest in 17 months, in defiance of comments from officials including Finance Minister Taro Aso and Chief Cabinet Secretary Yoshihide Suga that they’re ready to take action to halt its gains. Weakening the currency has been central to Bank of Japan Governor Haruhiko Kuroda’s efforts to boost inflation to 2 percent. The central bank’s benchmark price gauge has been stagnant for the past year.

Robertsen anticipates a three-pronged strategy to weaken the yen: sales by the Ministry of Finance, additional stimulus at the BOJ’s April meeting, and increased fiscal spending. This would send a powerful message to investors that “policy makers in Japan are not just sitting back and watching this happen,” he said.

The yen traded at 109.45 per dollar as of 9:30 a.m. in Tokyo Thursday.

Most Bearish

The currency’s surge this year has surprised many analysts, who had predicted it would weaken from around 120 per at the end of last year to 124 by March 31, according to the median estimate in a Bloomberg survey. Standard Chartered was the most bearish, forecasting a slide to 130.

While the company has since revised its estimates, it remains the most negative on the yen among major banks with a third-quarter forecast for 125.

Robertsen said the yen may even test its 13-year low of 125.86 set in June last year, with the key driver being the BOJ. He said Kuroda needs to act to get his reflationary program back on track after the central bank’s gauge of the yen’s nominal effective exchange rate surged to the highest since October 2013, which was just months after the introduction of unprecedented stimulus.

“All of the policy easing that they have done, in terms of its impact on the currency, has now been washed away,” Robertsen said. “That’s why I continue to believe that the Bank of Japan -- not only are they not giving up -- but they will probably pursue something more aggressive going forward.”

Bond Buying

Kuroda will probably forgo lowering the deposit rate from minus 0.1 percent, and may instead expand bond buying into corporate debt, Robertsen said. The central bank chief has said he has the ability to boost easing through adjusting the quantity and quality of asset purchases, as well as room to cut the deposit rate to as low as minus 0.5 percent.

Robertsen doesn’t see Japanese officials as having their hands tied by the Group of 20 agreement in February to refrain from competitive currency devaluation. He points to a passage in the communique on the “adverse implications for economic and financial stability” of “excess volatility and disorderly movements in exchange rates” as opening the door for intervention.

Some -- including former Japanese currency official Eisuke Sakakibara and JPMorgan Chase & Co. strategist Tohru Sasaki, who worked at the BOJ for a decade -- see intervention as futile in the current environment. For Robertsen though, the authorities may have little choice.

“If we were to get a bit lower from here in dollar-yen and the Ministry of Finance did not intervene, I think the markets would very quickly come to the conclusion that either the Japanese policy makers had given up, or had recognized the limits of their ability,” he said. “That would be almost like a red flag to a bull.”

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