Veteran ING Analyst Turns Into Biggest Yen Bull on U.S. Election

  • ING revises third-quarter forecast to 95 per dollar from 112
  • Calls reflect ‘protectionist risk-premium’ in U.S.: Turner

The yen will rally to a three-year high of 95 per dollar in September as a U.S. election campaign strong on protectionist rhetoric makes it hard for Japan to curb the currency’s strength, according to an ING Groep NV analyst with a quarter century of experience.

ING is the most bullish yen forecaster in a Bloomberg survey of analysts, after the biggest Dutch bank this week raised its projection for the third quarter from 112 versus the greenback. The firm also revised its year-end estimate to 100 from 112, as candidates from both the Democratic and Republican parties questioned the merits of free trade in the U.S. presidential campaign, according to Chris Turner, ING’s London-based global head of strategy. The Japanese currency traded around 110 in Asia Thursday.

“We have revised our profile to formally take into account a protectionist risk-premium ahead of U.S. presidential elections in early November,” Turner said in an e-mail interview. “We feel dollar-yen will be the vehicle through which the market will want to express such fears, particularly given the limitations for Japanese FX intervention.”

The yen has surged more than 9 percent this year, threatening the Bank of Japan’s efforts to stave off deflation. The currency last traded at 95 in June 2013. Until recently, the yen’s decline had helped large companies to record profits as their products became cheaper in global markets.

Japan’s Finance Minister Taro Aso has led officials in repeatedly stating that intervention is an option if the yen’s moves become too extreme. A U.S. Treasury official said this week currency moves have been orderly and Secretary Jacob J. Lew would emphasize foreign-exchange commitments at the Group of Seven meetings in Japan this month. The last time Japan sold yen to restrain gains was in 2011, in a multilateral intervention following the devastating March earthquake and tsunami.

“The U.S. political environment will make it very difficult for the MOF to launch and sustain an FX intervention campaign to support dollar-yen,” Turner said, referring to Japan’s Finance Ministry. “Intervention could potentially be used as evidence of unfair subsidies in a febrile U.S. election campaign.”

Donald Trump, the presumptive nominee for the Republicans, has promised to declare China a currency manipulator. Hillary Clinton, the likely Democratic nominee, plans to “take on foreign countries that keep their goods artificially cheap,” according to a campaign website.

Forget Fed

Turner’s forecasts diverge from the median estimates of analysts for the yen at 112 per dollar in the third quarter and weakening to 115 by year-end. A likely interest-rate increase by the U.S. Federal Reserve in September won’t be enough to keep Japan’s currency depressed, he said.

Any declines in the yen from further easing by the BOJ will also be short-lived, Turner said. He predicts Governor Haruhiko Kuroda is set to boost the central bank’s asset purchases in July and may even introduce negative rates on its loan support program to financial institutions. Over 90 percent of economists surveyed by Bloomberg last month predicted more BOJ easing by the end of July.

“The limitations of the BOJ toolkit will prevent a typical Kuroda surprise on monetary policy,” Turner said. “Instead we see more scope for surprise through the fiscal channel, where looser fiscal policy could actually prove yen positive.”

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