The yen has taken a hit this year, but leading foreign exchange strategists polled by Reuters say it won't fall much further until the Bank of Japan actually follows through on promises of aggressive easing. For now, those plans remain far in the future. Markets are being patient with newly-elected Prime Minister Shinzo Abe, who promised to do whatever it takes to get the world's No 3 economy out of a deflation spiral.
The yen has lost almost a fifth of its value in just five months on expectation of radical action. However, currency strategists - who have by and large have forecasted a weaker yen for several years, even when the currency was strengthening - do not expect a further sharp slide. A Reuters poll of 63 currency strategists, conducted recently, showed the dollar at around the current level of 93 yen in one month, 94 in three months and 97 yen in a year, compared with 92, 92 and 95 yen in last month's poll.
The BOJ doubled its inflation target to 2 percent in January and made an open-ended pledge to buy assets from next year, but analysts question the central bank's commitment to act on its promise and its ability to achieve the target. "They (the BoJ) have talked the talk, now can they walk the walk? Even if the BoJ comes up with something radical... will it work?" said David Bloom, head of foreign exchange strategy at HSBC. "What is the governor of the BoJ and his deputies going to do? And unless it is something radical it does not make a difference whatever they say anymore," added Bloom, who forecasts dollar/yen at 80 in a year.
Major global banks - ANZ, BNP Paribas, CIBC, Goldman Sachs, HSBC, Lloyds and RBC - have consistently forecast the yen to strengthen since October, when it started weakening. HSBC's Bloom has been the most bullish on the yen for several months. The safe-haven yen is also expected to receive a boost if the euro zone debt crisis reignites or further risks to global growth appear. However, many strategists are slowly starting to believe that a weaker yen is here to stay.
Since December, the Reuters FX poll has shown an increasing number of analysts expecting the yen to trade at or above 100 on a twelve-month horizon. Abe's push for bolder monetary stimulus has helped weaken the yen to a near three-year low against the dollar, giving the export-reliant economy some relief and the BOJ some breathing space.
"We believe Japanese authorities will work actively to maintain the momentum that has been built up in dollar/yen," wrote Ric Deverell at Credit Suisse. Abe's choice of Haruhiko Kuroda, president of the Asian Development Bank, as the new BOJ Governor, is part of an unprecedented push by Tokyo to get the central bank to take aggressive action.
"A further significant weakening over coming months is highly likely, with Japanese monetary policy likely to become far more stimulatory once a new governor is in place." The BoJ is expected to keep monetary policy steady for the second straight month at the rate review this week, the last for outgoing governor Masaaki Shirakawa and his two deputies before the change in leadership.
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