Yen set to weaken on divergence in central banks' policies

The yen will weaken over the coming year on expectations the US Federal Reserve trims back its bond-purchase programme just as the Bank of Japan maintains its own massive stimulus package, a Reuters poll found. The latest consensus is the first time since October 2008 that expectations are for the yen to trade above 100 to the dollar across the entire polling time horizon.
Conducted this week, the poll of 60 currency strategists showed the dollar at 101 yen in one month, 103 yen in three and 107 yen in a year, compared with 99, 101 and 105 yen in last month's poll. The range of forecasts has also steadily moved towards a weaker yen, which augurs well for the export-reliant economy.
Fed Chairman Ben Bernanke suggested in May that a potential roll-back of the massive bond-purchase programme could begin in the next few months if the economy improves further. Upbeat data since then have fuelled a rally in the dollar and hurt global equities.
Indeed, the Nikkei, which had charged up to a 5-1/2-year peak less than two weeks ago, up over 50 percent since the end of 2012, has now lost around 15 percent since then. And if the Fed does trim or end its stimulus programme the yen was seen as the most vulnerable currency, according to 32 analysts who answered an extra question. The yen has weakened 15 percent this year, with much of it coming after the BOJ announced an intense burst of monetary stimulus in April, mandated by Prime Minister Shinzo Abe to fight two decades of deflation.
Despite the rapid slide in recent months, 19 of 31 analysts said the yen was not weaker than its natural trading value. Eleven said it was weaker and one said it was fair value. However, the yen is expected to weaken only at a modest pace as analysts wait for Abe to dish out reforms to boost long-term productivity and competitiveness. "In Japan, its just not all about monetary easing. For the high dollar/yen to sustain, we'll also need to see a credible growth strategy and economic reform plan by the Japanese government," said Hardman.