The yen’s fate this year hinges on what happens this week: whether it has a record fourth annual decline or is this year’s best-performing major currency.
With just four days left, Japan’s currency has slipped 0.6 percent versus the US dollar this year. That makes it the second-best performer among 16 major currencies against the greenback, behind the top-ranked Swiss franc, which has strengthened 0.8 percent. The yen advanced for four straight days through Friday last week amid declines in Japanese stocks.
“There’s the potential for more yen buying amid continued risk aversion,” Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd, a margin-trading services provider, wrote in a note to clients. “If the market turns, it will not only derail a record fourth annual decline for the yen, the start of 2016 could be the beginning of three years of weakness for the dollar.”
The yen was little changed at ￥120.47 per dollar as of 6:45am in London, after gaining 0.7 percent last week. The US currency traded at US$1.097 per euro, from US$1.096 on Friday last week. The franc gained 0.1 percent to 98.69 centimes per dollar.
Japan’s TOPIX index of stocks yesterday rose 0.9 percent after completing five weeks of declines.
The Japanese currency’s 0.6 percent decline versus the greenback would be the smallest move in either direction over the course of a year since 1992’s 0.03 percent advance. In each of the past three years, the yen has declined at least 11 percent against the US currency.
The policy divergence that has driven the yen’s 36 percent decline since the end of 2011 is waning, after the Bank of Japan refrained from expanding stimulus this year, while twice pushing back its target for reaching 2 percent inflation.
Traders expect the US Federal Reserve to increase interest rates only about twice next year, futures indicate, after policymakers raised their benchmark this month for the first time in almost a decade.
Yen bulls are growing in number. Seventeen analysts now see it appreciating to at least ￥120 per dollar by the end of next year, versus 13 on Nov. 30. JPMorgan Chase & Co has the most bullish forecast among the 60 or so compiled by Bloomberg, at ￥110 per dollar.
Meanwhile, a gauge of the greenback is headed for its biggest monthly loss since June. The Bloomberg Dollar Spot Index has dropped 0.8 percent so far this month.
If the yen strengthens beyond ￥120 per dollar, it could continue gaining until it reaches the Oct. 15 high of ￥118.07, Tokyo-based Mizuho Securities Co chief currency strategist Kengo Suzuki said.
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