The yen will weaken slightly over the next 12 months provided the Bank of Japan follows through on market expectations for aggressive monetary stimulus, a Reuters poll showed on Wednesday. The currency has lost over a fifth of its value since October on expectations of unlimited asset purchases by the bank, mandated by Prime Minister Shinzo Abe to fight two decades of deflation.
However, strategists say the chances of any significant further losses are limited as markets are already positioned for aggressive easing. Abe and BoJ Governor Haruhiko Kuroda have already set the bar very high. "The market is very short yen at this stage and we have probably seen the sell-off in the yen over-extended to a fairly significant degree," said Shaun Osborne, chief currency strategist at TD Securities.
"It is difficult to see a situation where the BoJ could actually surprise, given the level of comment and talks about the easier policy stands emerge from the BoJ's new leadership." The poll of 64 analysts, conducted this week and published on Wednesday, showed the dollar at 94.3 yen in one month, 95.0 in three months and 98 yen in a year, compared with 93.0, 94.0 and 97.0 yen in last month's poll.
Many strategists are starting to believe that a weaker yen is here to stay. Since December, the monthly Reuters poll has shown an increasing number of analysts expecting the yen to trade at or above 100 on a 12-month horizon. Twenty-six of 64, more than a third of respondents, expected dollar/yen to trade at or above 100 in a year, the first time since June 2010 when that many forecasters had a similar view.
However, the consensus shows a lack of conviction among strategists - who by and large have forecasted a weaker yen for several years, even when it was strengthening - in calling for a sharp slide in the currency. Analysts have priced in hefty bond purchases and a radical shift in policymaking framework by the BoJ at its meetings this month, including Kuroda's first as the new governor of the central bank on April 3-4.
But reports suggest Kuroda is struggling to build a consensus of a board divided on how much should the BoJ ramp up bond buying. Hence, some analysts are worried the BoJ might not live up to expectations and the yen could even strengthen in the near term from the 93.60 it was trading at earlier on Wednesday.
"In the short term there is a risk of a drop back towards 88-90 yen, because the sell-off (in the yen) is perhaps not really justified by what we are likely to see from the BoJ in the next few weeks," Osborne said. The safe-haven yen may also get a boost in the short-term on concerns the euro zone debt crisis is flaring up again after Cyprus's brush with a financial meltdown. "There are still significant risks from the euro zone," said Roberto Cobo Garcia, a forex strategist at BBVA.