LONDON – The yen could fall to around 95 to the dollar over the next three years, according to George Savarelos, head of European exchange research at Deutsche Bank.
“The yen has reached the limits of appreciation,” Savarelos said recently. “The current account dynamics (of Japan) are looking weaker” because the yen’s strength is beginning to affect the country’s exports.
At the same time, there is fear of Japanese authorities launching yen-weakening market intervention, Savarelos said, noting it is difficult for the yen to reach new highs.
The dollar is poised to start a shaky uptrend that could last seven to eight years, he said.
“What we are expecting is a gradual trend to a higher dollar, but it is going to be very choppy and relatively slow,” he said, adding that the dollar rise probably won’t accelerate until the U.S. Federal Reserve starts hiking interest rates.
Savarelos indicated there are still dangers to the euro due to Europe’s raging financial crisis.
“As far as the exchange rate is concerned, what is most important for markets is the systemic risk from Europe, when Spain or Italy threaten to unravel global financial stability and global growth,” he said.
He thinks central bankers and political leaders will ultimately do the right thing as it is in everyone’s interest for the eurozone to survive.
However, Savarelos said the European Central Bank’s program to buy government bonds to cushion market pressure on debt-laden countries could be challenging.
“If ECB action is bringing this risk down, it is positive for the euro,” he said. “At the same time, if the ECB balance sheet is going up, it is equivalent to more easing. That tends to be negative for the euro.”