© Sverre Holbek
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Sverre Holbek
Senior FX Analyst at Danske Bank
1) In light of yesterday's Bank of Japan's move to implement a new monetary easing program, the Yen dropped significantly against the other major currencies. Do you consider these currency protection measures effective?
We have seen the Yen weakness on these measures and from the exporters' perspective that is, of course, positive. Still, the Bank of Japan is lagging behind the other major central banks. We do not think that it is going to lead to a more significant depreciation of the Yen. If we have a look at USD/JPY, for example, it is still very much driven by the outlook for short US rates. With the Fed being firmly on hold until sometime in 2014, it has actually pledged to keep rates exceptionally low until the end 2014. Therefore, we do not foresee a lot of upside potential for the pair.
2) What do you think could be the main drivers for the potential rise of the Yen and when we will be able to observe it?
We assume that the thing we have seen have been one of the factors that has been lifting USD/JPY. Moreover, we have see
n weak Japanese growth figures showing the contraction of the economic growth in the Q4 of 2.3%.
Economic data has also been pointing towards a weaker Yen. Besides, we have witnessed some deterioration of the external balances with the Japanese economy boosting trade deficits for the first time since the 1960s. These are the factors that have been lifting USD/JPY; nevertheless, we regard that the potential for the rise is limited from the current levels.
3) What is your forecast for the Yen in Q1 and Q2 taking into account the recent events?
By the end of the Q1 we forecast the Japanese currency to hit the level of 78, as we think that the current rise will prove temporary. For the end of the second quarter we expect the Yen to reach 77.