Best yen analysts join skepticism of Abe

by Monami Yui and Hiroko Komiya

Bloomberg

Shinzo Abe’s return to the post of prime minister has fueled speculation his stimulus policies will extend the yen’s biggest drop since 2005. Domestic companies and the best currency forecasters aren’t so sure.

The yen is down 9.9 percent this year and on Wednesday weakened below 85 per dollar for the first time in 20 months following calls by Abe for the Bank of Japan to unleash unlimited monetary easing. That overshoots where large manufacturers said the currency will trade at through March, while the five most-accurate predictors of the yen in Bloomberg Rankings said after Abe’s win that it will rebound to 82 by the end of June.

Japan’s deflation-plagued economy has contracted 7 percent since 2007 as six prime ministers, including Abe in his first term, failed to reverse the course.

“Japan needs to make the yen very unattractive to hold from a foreign investor point of view,” said Robert Rennie, the Sydney-based chief currency strategist at Westpac Banking Corp., the fifth most-accurate forecaster for the dollar-yen rate for the six quarters through Sept. 30. “That’s going to be fairly difficult to do in a systematic way.” He said the yen will strengthen to 81 per dollar by the end of June.

Large manufacturers forecast on average that the yen will trade at 78.73 per dollar in the fiscal half through March, the Bank of Japan’s quarterly “tankan” report showed Dec. 14. That was stronger than the 78.97 level predicted in the previous survey in September.

The five best yen forecasters — which also include Monex Europe Ltd., Citigroup Inc., UniCredit SpA and Morgan Stanley — predict the yen will trade at 83 by the end of the year, according to the median of their estimates from a Bloomberg News survey last week. A compilation of 26 estimates from after the election predicted a weakening to 88 in December, based on the median.

The yen has tumbled 13 percent this year, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. That’s a reversal from the previous two years, when it was the biggest winner, adding 5.5 percent in 2011 and 12 percent in 2010.

The currency was at 85.33 per dollar as of 3:01 p.m. in Tokyo, after touching 85.36, the weakest level since April 2011 and a 13 percent plunge from the postwar record high of 75.35 reached last year.

Japan’s manufacturers are clamoring for further depreciation to help them compete against overseas rivals and increase the value of repatriated earnings.

Akio Toyoda, president of Toyota Motor Corp., said Dec. 20 that the yen remains “very strong” and reiterated calls for the government and central bank to do more to weaken the currency.

Nintendo Co., the world’s largest maker of video-game machines, slashed its full-year earnings forecast by 70 percent in October after booking a foreign-exchange loss of ¥23.2 billion.

“Companies are unlikely to lower their defenses just because of the yen’s recent declines,” said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo., a unit of Nippon Life Insurance Co. What’s behind the struggle of Japanese companies is “a lack of competitiveness. I don’t think Japanese electronics will sell better even if a weaker yen makes them cheaper.”

Decades of surplus in Japan’s current account have allowed the country to finance its budget deficits, helping preserve the yen’s status as a haven. Concern that Japan will eventually have to rely on foreign capital has increased since the country posted a seasonally adjusted current-account deficit in September, the first since at least 1985. Commonwealth Bank of Australia cut its yen forecasts last week, citing the “collapse” of the nation’s current-account surplus.

“The yen will start to lose its safe-haven status,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank, Australia’s biggest lender. “Japanese exporters would be very happy with that.” He forecasts the yen will weaken to 91 per dollar by June 30.

Abe’s near daily comments on increasing stimulus have boosted stocks, with the Nikkei 225 average reaching 10,000 last week for the first time since April, as the yen declined.

“Japan’s Abe means business this time,” Bill Gross, who runs the world’s biggest bond fund at California-based Pacific Investment Management Co., wrote in a Twitter post earlier this week. “Trillions of yen to be printed. Weak yen, positive inflation.”

Abe’s first term as prime minister lasted one year and his September 2007 resignation statement made no mention of his economic record except for a growth strategy “centered on innovation and openness.” Investors pared bearish bets on the yen last week for the first time in a month.

“If Abe’s promises of monetary easing are put into action, then it wouldn’t be impossible to see the yen weakening beyond the 90 level to the dollar and staying there,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd. “But given some of his policies seem unfeasible at this stage, I’m not expecting the yen to depreciate in a straight line.”