Japan's yen will likely dip a little from current levels over the next year, as central bank action from abroad and at home subjects the currency to both weakening and strengthening forces, a Reuters poll showed. The poll of over 60 currency strategists, conducted this week, showed the US dollar is expected to fetch 78.0 yen in October, 80.0 in March and 83.0 in a year's time.
Those forecasts were roughly unchanged from a similar survey in September, signalling strategists' reluctance to change their calls after the central banks of both countries announced an expansion in their asset purchase programmes. The US Federal Reserve last month said it would buy US government bonds worth $40 billion every month until the jobs market improved.
Japan's central bank surprised markets by increasing the scale of its asset purchase programme to 10 trillion yen, to prevent a sudden surge in the yen's value that would harm Japan's exporters. "The effect of QE (quantitative easing) has different effects in (the two) countries," said Dominic Bunning, foreign exchange strategist at HSBC. "The balance of foreign flows into the Japanese market shows that funds actually flow a lot more into equities than they do for bonds in Japan, having different effects on their respective currencies."
For many years, both before and after the financial crisis began, the yen has wrong-footed forecasters, who have tended as a group to look for it to weaken against the dollar. While the Fed's actions will pull the dollar lower, the absence of any meaningful difference between sovereign bond yields of the two countries will keep investors wary and the currency pair range-bound.
The yield differential between the benchmark 10-year treasury in the US and Japan stood a little below one percentage point in favour of the US bond on Wednesday, providing little incentive for choosing to invest in one country over the other. Overall, the Japanese economy also seems to be in lock-step with the US economy, which clocked annualised growth of 1.3 percent in the second quarter, compared to Japan's 1.4 percent during the same period. The fiscal cliff approaching in the United States early next year, could trigger automatic spending cuts and tax increases and bring growth to a halt if not averted. Although markets expect some sort of attempt from Washington to avoid that event, the run-up to it may significantly affect the greenback's fortunes.