The Japanese yen will remain firm against the dollar in the next few months but then weaken gradually in 2012 as domestic firms start investing overseas and the US economic recovery gathers steam, a Reuters poll showed on December 8.
Conducted right before a crucial European Union summit which markets hope will deliver a plan to resolve the two-year old debt crisis, the poll showed the dollar is expected to trade at 77 yen in a month, 78 in six months and 80 in a year - unchanged from the November survey.
While analysts for years have consistently predicted a weaker yen, the likelihood of another euro zone recession as well as disappointing growth in the United States and much of the developed world have kept demand for the safe-haven yen strong. "Pretty much everyone was wrong-footed this year," said Mitul Kotecha, chief foreign exchange strategist at Credit Agricole CIB, referring to analysts' predictions for a weaker yen that never materialised. "It is a risk having a bearish call on the Japanese yen next year as well, but the rationale for a weaker yen apart from yield differentials is investment flows."
Reuters polls have shown a consistent bias toward a weaker yen over many years of surveying no matter what the circumstances and they have been consistently proved incorrect. The yen touched post-war highs a few times this year as repatriation flows intensified after Japan was rocked by an earthquake, tsunami and nuclear crisis in March, its worst disaster since the Second World War.
However, the yen has strengthened more than 4 percent versus the dollar so far this year. Willingness of Japanese life insurance and postal funds to invest overseas will hold the key to a weaker yen in 2012, according to Kotecha. Also, the US economy which has broken step with the euro zone is now expected to grow at a faster pace in 2012, which could support the dollar.
But its housing market, considered as the bedrock of the economy and critical to any meaningful recovery, is yet to stabilise and a recent Reuters poll found expectations for stagnation next year. In an effort to boost that market, the Federal Reserve is expected to re-start its quantitative easing programme, this time buying more than half a trillion dollars of mortgage-backed securities, according to a majority of primary bond dealers polled by Reuters on Friday.
The rapidly surging yen, along with fragile economic growth, has forced Japanese authorities to intervene frequently in foreign exchange markets in 2011 with little effect so far. On October 31, Japanese authorities likely spent a massive 8 trillion yen, a daily record, trying to stop a surge in the safe-haven currency and have since then topped it up with a string of small-scale interventions.
The yen is expected to be more volatile in December, clocking an annualised volatility rate of 7.7 percent after falling sharply to 5.4 percent in November. Median consensus for the Swiss franc versus the euro were at 1.23 in the one-month window and 1.24 in six-months before edging lower to 1.26 in a year. The Swiss National Bank will likely maintain its cap of 1.20 franc to the euro next year as well as it tries to artificially dent demand for the currency amidst turmoil over the euro zone debt crisis. "There's no worry about inflation. Until inflationary pressures start to pick up, the SNB will hold this cap," added Kotecha.