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How would you evaluate the current Yen's performance?
Market participants have been expecting that the Fed would determine an additional QE (Quantitative Easing) in December, hence USD/JPY would trade below 78.00. I think 78.75 is the fair value in case the Fed does not announce the additional QE.
It is likely that USD/JPY goes above 79 in an instant, but it would be trading around 78.75 for some time, because the timeframe of the Fed's zero rate policy is stable.
It seems that the U.S. economy is set to outperform Japan, thus providing a support for the U.S. Dollar and a weakness in the Yen. Does it mean that we are unlikely to see any interventions by the central bank in the near future?
I do not think interventions are determined only if the Yen outperforms the U.S. Dollar. I believe it is possible that the Japanese government does interventions even in case the greenback outperforms the Yen. To my mind, the most important aspect here is the relationship between the U.S. government and the Japanese government, because interventions made by the BOJ mean purchasing more U.S. Dollars. In case the U.S. government wants the greenback to be weaker, in order to support exporters, they would never tolerate interventions from Japan's side, even if the Yen outperforms the U.S. Dollar considerably.
However, in case the U.S. government has some sympathy for Japan, and the relationship between the two countries is amicable, the US government would accept the intervention. I do not think that currently the interrelation between the US and Japan is good, as the issue of Okinawa Base is deadlocked. Thus, I expect that the Japanese government and the Bank of Japan would not be able to do any interventions for the moment.
Do you expect that the Yen will continue to depreciate in the last quarter of 2012?
No, I do not expect, as the Federal Open Market Committee said interest rates would remain at or near zero until mid-2015.
What is your forecast for USD/JPY and EUR/JPY for the end of the year and what will be the main drivers of the Yen's performance?
We expect USD/JPY to trade at 79, while we see EUR/JPY at 99. I think the most important factor for the Yen's performance is the ‘Fed's policy'. In case the US jobless rate falls, the US Dollar will outperform the Yen. However, the Yen would perform better than US Dollar if the Fed says that they would continue Zero rate policy and announces more QE measures, as US jobless rate may reach a higher level around 8.0%.