The yen will keep weakening in the next few months, possibly falling beyond ￥90 to the US dollar, Japan’s former currency czar, Eisuke Sakakibara, said yesterday, while a former senior Bank of Japan (BOJ) official also forecast the yen’s decline.
The two former officials weighed into an intensifying debate in financial markets whether the yen was poised for a lasting reversal of its rising trend and a longer spell of weakness. Expectations that the BOJ may further ease its ultra-loose policy at a time when US and eurozone central banks move closer to lifting interest rates have spurred talk about a return of a yen carry trade, where a low-yielding yen is used to fund investments in higher-yielding assets.
“I would not be surprised if the dollar/yen exceeds 90,” said Sakakibara, who was known as Mr Yen in the 1990s as he spearheaded Japan’s intervention to stem the yen’s rise when he served as vice minister for international affairs at the Ministry of Finance.
The yen’s depreciation is likely to continue in the coming three to six months, Sakakibara told foreign correspondents in Tokyo.
Separately, Eiji Hirano, former BOJ executive director, said the yen was likely to weaken medium to long term as the BOJ maintains its ultra-loose monetary policy.
However, if the yen spikes up sharply again, G7 nations will likely step into the currency market again, Hirano said in an interview.
The yen was trading around 84 to the dollar yesterday, well below its all-time high of 76.25 hit days after the March 11 devastating earthquake and which triggered a rare G7 intervention.
“The yen’s move just after the quake was a perfect case for concerted intervention,” Hirano said.
“The markets are still unstable. In the event of severe market turmoil, the G7 nations may jointly intervene again,” he said.
At its meeting tomorrow and on Thursday, the bank is expected to discuss launching a credit line to financial institutions in the quake-affected areas. It may also consider further monetary easing to help the economy cope with the aftermath of the earthquake and tsunami that devastated coastal areas in Japan’s northeast and triggered the world’s worst atomic crisis in 25 years.
This is likely to weigh on the yen, making it more attractive carry trade funding currency than the US dollar.
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