Wall Street forecast of ¥ 100 to the dollar catching up at Japanese banks

Wall Street and Japan ‘s largest banks are starting to see a yen – like outlook, saying its rise could break the ¥ 100 barrier to the dollar next year.

JPMorgan Chase & Co., Goldman Sachs Group Inc and BNP Paribas SA are all predicting that the yen will hit the pool mark for the first time in four years in 2021. Closer still, domestic giants Mizuho Bank Ltd. and MUFG Bank Ltd. joining them, with estimates that the yen could even push to ¥ 98, a level not seen since 2013.

The yen at ¥ 100 to the dollar is a tough call for Japanese banks, mainly because this is the point where domestic exports start to lose money. Now the weak movement of the greenback is closing a traditional gap between local and global views on the yen.

“The idea gap has been in place for years,” said Hiroshi Yokotani, a portfolio strategy for fixed income and currencies at World State Advisors in Tokyo. “Compared to previous years, more Japanese seem to be predicting the weakness of the dollar and the appreciation of the yen to a little later next year.”

The bullish forecasts are largely due to a gloomy consensus on the dollar. The world’s reserves are at multifaceted levels against major peers. It has lost 4% against the yen this year, and 2021 could mark the sixth straight year of underperformance – the longest streak they have lost since Japan introduced the flat rate system in 1973.

Investors are now severely shortening the dollar, which raises the risk of not getting upset if a vaccine rollout picks up momentum faster than U.S. expectations. David Forrester, foreign exchange strategist at Credit Agricole CIB in Hong Kong, sees the yen test at ¥ 100 only short at best, as it expects “next -The U.S. turned slightly better than Japan. ”

Dollar driver

It is a widespread view, however, that the weak movement of the dollar has reversed. “America’s current account deficit, low yield and large money base” are the result of the purchase of unique bonds at the Federal Reserve, said Minori Uchida, head of global market research at MUFG Bank in Tokyo. Last year saw the yen finish 2020 at ¥ 104, slightly weaker than Friday’s level of ¥ 103.11 per dollar.

The U.S. average accounting gap in the second quarter widened to its highest level since 2008, while Japan’s surplus widened. And U.S. 10-year yields have stuck below 1%, even as inflation expectations have risen.

The greater potential for central bank discounts in the U.S. compared to Japan also measures the dollar, as it means that real U.S. yields – bond yields adjusted for inflation – could fall even below zero . Yields are significantly higher in Japan, where central bank options look almost uneasy after cycling through quantitative easing, negative rates and yield curve control.

Against this background, which has seen investors entering U.S. stocks rise, the dollar appears to be overvalued, according to Osamu Takashima, chief money strategist at Citigroup Global Markets Japan Inc. It sees the yen rallying past ¥ 100, within ruigsinneachd 95 reach.

The yen approaching the ¥ 100 mark would certainly catch the eyes of policymakers, with the risk to export profits as the economy struggles to recover from the disease panoramic. A study from the Cabinet Office in March showed that the fair exchange rate for registered export companies in fiscal 2019 was ¥ 100.20.

“The yen is able to hit ¥ 100 against a weaker dollar but Japanese authorities will do all they can to prevent that,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo. Between the central bank and the Ministry of Foreign Affairs, there are a lot of options for the return of the currency, he said.

Japan last intervened in November 2011 to halt speculative buying that pushed the yen towards ¥ 75. Intervention barriers have risen globally since then.

Some traditional bulwarks may be against yen fruit grinding. One of the ways in which Bank of Japan policy has kept the yen down is by driving domestic output so low that investors are encouraged to get better returns abroad. These investment streams may not stand up, especially as local output outperforms less successful government dispersal.

“Outward flows include demand for foreign direct investment and others that stop the yen appreciation rate, but its braking effect is weakening,” said Uchida at MUFG.

Another traditional study of the strength of the yen is the importers and institutional investors waiting for the dollar to buy at dips. These buyers may have brought their main entry point down to ¥ 100 since breaking the ¥ 104 level that has been held more or less steadily for the past four years, said Uchida.

Moreover, some are now considering the unvalued yen based on purchasing power parity after years of pressure from a central bank’s aggressive policy.

“Theoretically the average value of the yen is around ¥ 100 or even a little more than that,” Yokotani said at State Street. “Strength in the U.S. economy and years of declining Japan’s currency have prevented changes, but the yen’s uptrend could pick up slightly next year given the U.S. state and its monetary policy stance.”