9 Apr 2015
USD/JPY might reach 140 by year-end – Capital Economics
FXStreet (Barcelona) - Andrew Kenningham of Capital Economics, explains that JPY might weaken severely by year-end, even more than the euro as doubts exist on the positive impact of Japanese QE, and forecasts USD/JPY and EUR/USD to end the year at 140 and parity respectively, by year-end.
Key Quotes
“With the ECB and the Bank of Japan (BoJ) both implementing large scale QE programmes, and the Fed still likely to announce its first rate hike later this year, we expect both the euro and the yen to depreciate against the dollar in the coming months. But we think the yen will fall much further than the euro.”
“Our forecasts are for the Japanese currency to weaken by 17%, to ¥140 per dollar, by year-end and for the euro to depreciate by around 8%, to parity against the dollar.”
“But looking forward, there are two key reasons to think that the yen is likely to fall a lot further than the euro this year. First, we expect monetary policy to be loosened more, and earlier, than widely anticipated in Japan whereas we think it is highly unlikely that the ECB will spring any surprises.”
“the BoJ, as we predicted, left its policy settings unchanged at its meeting which ended on Wednesday this week, and it gave no hint that it was preparing to ease policy again. But we still think it is likely to unveil additional monetary easing at its next policy-setting meeting, on 30th April.”
“After all, Japan’s inflation rate looks set to turn negative in the coming months, raising serious doubts about the BoJ’s ability to meet its inflation target, and all the recent indications suggest that its economy is stagnating.”
“The second reason to expect the euro to perform better than the yen this year is that the markets are likely to focus on the early benefits of QE in the euro-zone but its apparent failure after two years in Japan.”
“…the impact of the depreciation of the yen on inflation in Japan has already faded, and the weakness of the exchange rate seems to have had very little effect on the volume of Japanese exports. Two years after QQE was launched, the weakness of Japan’s economy is in turn likely to depress sentiment towards the currency.”
Key Quotes
“With the ECB and the Bank of Japan (BoJ) both implementing large scale QE programmes, and the Fed still likely to announce its first rate hike later this year, we expect both the euro and the yen to depreciate against the dollar in the coming months. But we think the yen will fall much further than the euro.”
“Our forecasts are for the Japanese currency to weaken by 17%, to ¥140 per dollar, by year-end and for the euro to depreciate by around 8%, to parity against the dollar.”
“But looking forward, there are two key reasons to think that the yen is likely to fall a lot further than the euro this year. First, we expect monetary policy to be loosened more, and earlier, than widely anticipated in Japan whereas we think it is highly unlikely that the ECB will spring any surprises.”
“the BoJ, as we predicted, left its policy settings unchanged at its meeting which ended on Wednesday this week, and it gave no hint that it was preparing to ease policy again. But we still think it is likely to unveil additional monetary easing at its next policy-setting meeting, on 30th April.”
“After all, Japan’s inflation rate looks set to turn negative in the coming months, raising serious doubts about the BoJ’s ability to meet its inflation target, and all the recent indications suggest that its economy is stagnating.”
“The second reason to expect the euro to perform better than the yen this year is that the markets are likely to focus on the early benefits of QE in the euro-zone but its apparent failure after two years in Japan.”
“…the impact of the depreciation of the yen on inflation in Japan has already faded, and the weakness of the exchange rate seems to have had very little effect on the volume of Japanese exports. Two years after QQE was launched, the weakness of Japan’s economy is in turn likely to depress sentiment towards the currency.”