The yen will probably weaken over the next year as the Bank of Japan eases monetary policy further to offset any drag from a planned sales tax hike and to bring inflation up to its target, a Reuters poll found. Thursday's poll of around 65 strategists forecast the Japanese yen at 99 per US dollar in a month, 101 yen in three months and 107 yen in a year's time compared with 100, 102 and 105 predicted last month.
The yen has fallen about 25 percent over the past year on Prime Minister Shinzo Abe's economic policy and stimulus from the Bank of Japan (BoJ) aimed at shaking the world's third-largest economy out of a 15-year slumber of deflation and tepid growth. On Tuesday, Abe announced an increase in the national sales tax in April to 8 percent from 5 percent and an economic stimulus package worth 5 trillion yen ($51.4 billion) to soften any blow to the economy.
While the tax hike was a long-expected reform aimed at reining in the government's massive debt load, it is expected to have a negative impact on the economy initially. Strategists in the poll predict this will prompt further easing by the BoJ and keep the yen weak. "The question is whether they (BoJ) do it (more stimulus) pre-emptively or they wait to see what impact the tax hike has and if it slows growth more than what they'd like to see," said Benjamin Reitzes, senior economist at BMO Capital Markets.
"Given how active they've been, a pre-emptive move wouldn't really be surprising at all." The BoJ has been injecting around 7.5 trillion yen a month into the economy since April, aiming to drive inflation up to its target of 2 percent in two years. While it is expected to leave this policy unchanged at its review meeting that began earlier on Thursday, a dip in economic data releases next year could bring political pressure on the BoJ to expand its stimulus.
Strategists also agree that concerns over a political stalemate in the United States, which led to the first government shutdown in 17 years on Tuesday, could bring short-term strength to the safe-haven yen. But over the longer term, forecasters expect it to weaken on not just more stimulus from the BoJ but on dollar strength once the US Federal Reserve starts to taper its monthly asset purchase program. "This is a good opportunity to buy dollar-yen just because there's been a bit of a dip. The underlying data in the US is fairly good and I think that will still shine through in the next year," said Daniel Brehon, FX strategist at Deutsche Bank.
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