Yen to weaken to 105/dollar in 12 months

The yen's rapid slide will moderate as investors wait to see the impact of the mega-stimulus programme unleashed by the Bank of Japan last month, according to foreign exchange strategists polled by Reuters. Wednesday's poll of 63 analysts, conducted May 3-8, showed the dollar at around the current rate of 99 yen in one month, 101 yen in three months and 105 yen in a year, a big change from 94.3, 95 and 98 yen in last month's poll.
The latest consensus forecasts across the polling horizon were the weakest since May 2009. The currency has lost more than a quarter of its value since October and expectations for a weaker yen are not surprising but it is striking those medians are not more pessimistic given the Bank of Japan has announced plans for $1.4 trillion of quantitative easing.
"The reasons for the slowing pace of yen depreciation are diminished prospects for further BoJ surprises," said Colin Asher, senior economist at Mizuho Corporate Bank. "And also at some stage people are going to wonder whether (the new government) is going to produce genuine reforms, which boost long-run productivity and competitiveness." The yen has lost almost 27 percent since October on expectations of unlimited asset purchases by the BoJ, mandated by Prime Minister Shinzo Abe to fight two decades of deflation. Last month, the central bank announced an intense burst of monetary stimulus, promising to inject about $1.4 trillion into the economy in less than two years, which sent the Nikkei higher, bond yields to record lows and the yen reeling.
But foreign exchange strategists said any significant further decline in the currency may well depend on the impact of the BoJ's policies on the economy. "To a large extent the sell-off in the yen that we have seen in the past few months is mainly driven by the speculative positioning in the currency," said Shaun Osborne, chief currency strategist at TD Securities.
Analysts expect the yen to remain weak over the next 12 months. Indeed, only nine of 63 analysts in the poll expect the yen to strengthen in a year compared with more than half in last month's poll. The range of forecasts have also steadily moved towards a weaker yen bias in recent months. Allied Irish Bank, ANZ, CIBC, HSBC, IDEAglobal, Julius Baer and Lloyds - who have consistently been the most bullish on the yen - have also moved their dollar/yen forecasts higher.