Japan’s former top currency official, Eisuke Sakakibara, says the nation’s central bank stimulus is nearing its limit and the yen will gradually strengthen toward ￥90 per US dollar next year.
Japan’s currency last week gained the most since July, touching ￥100.10 against the greenback on Thursday, the day after the Bank of Japan (BOJ) shifted policy toward targeting the shape of the sovereign yield curve instead of money-supply expansion, while leaving the negative deposit rate and scale of asset purchases unchanged.
The yen could break ￥100 “at any time,” and might “immediately” strengthen as far as ￥95, said Sakakibara, who was dubbed “Mr Yen” for his ability to influence the exchange rate while a senior Japanese Ministry of Finance bureaucrat in the 1990s.
“The yen would probably have a slow appreciation, so that I would not be surprised to see the dollar at 90 yen at the end of next year,” the 75-year-old Sakakibara, who is now a professor at Aoyama Gakuin University, said in an interview yesterday. “At the very least, monetary easing is getting exhausted. They’ve been doing it for a long time. The effect is getting weaker and weaker.”
With its latest stimulus tweaks, Japan’s central bank has effectively positioned itself for the long haul, also scrapping a two-year time frame for achieving 2 percent inflation.
After BOJ Governor Haruhiko Kuroda started quantitative-and-qualitative easing in April 2013, the yen depreciated as much as 26 percent versus the US dollar to a 13-year low of ￥125.86 in June last year.
With the bank now cornering 36 percent of the Japanese government bond market, doubts have grown about the sustainability of the program. The surprise introduction of a negative-rate policy in January of this year only weakened the yen for one day.
Sakakibara said it is unlikely the central bank would aggressively ease monetary conditions further.
While a deepening of the negative deposit rate “is not unthinkable,” the probability is low because the policy has not been well received by financial institutions or the public, he said.
Kuroda yesterday reiterated that there is no limit to monetary policy and said talk of limits is not helpful at all.
The yen was at ￥100.93 per US dollar as of 3:48pm in Tokyo yesterday. It surged to as high as ￥99.02 on June 24, in the immediate aftermath of the UK referendum decision to leave the EU.
The yen is the best-performing developed-market currency this year, with a 19 percent appreciation versus the US dollar.
Sakakibara accurately forecast the currency’s advance this year from near ￥120 per US dollar to beyond ￥100 for the first time since 2013, defying the consensus among analysts at the start of the year for it to fall to ￥124. The median estimate remains that the yen will end the year weaker at ￥104 per US dollar.
Strength in the yen has been exacerbated by the US Federal Reserve’s decision to refrain from raising interest rates so far this year. Futures signal 55 percent odds of tighter policy by the end of this year.
Given the diverging outlook for monetary policy between the US and Japan, some appreciation of the yen against the US dollar “is only natural,” Sakakibara said.
However an exchange rate of ￥95 to ￥100 would be all right for the Japanese economy.
“This level of yen strength is not a crisis,” he said. “If it breaks 90 and hits 80, then I would start to consult with the US for joint intervention.”
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