Barron's Asia: Why The Yen Will Continue To Fall -- Barron's
11 Apr 2015, 06:02
(FROM BARRON'S 4/13/15)
[A version of this article appeared on April 8 at BarronsAsia.com]
The U.S. dollar Index rallied for the fourth day in a row last Thursday, closing near 99 for the first time this month.
With the European Central Bank and the Bank of Japan both implementing large-scale quantitative-easing programs and the Federal Reserve walking the other day, it's no surprise that most market participants expect the yen and the euro to depreciate more.
But Capital Economics made an interesting claim: that the yen will fall much further than the euro. The London-based economics specialist forecasts that by year end, the yen will weaken by another 17%, to 140 per dollar, and the euro will depreciate by only 8%, to parity against the dollar.
This forecast is surprising in that the yen has already weakened much more than the euro. The yen is down 14% since the Bank of Japan launched its QE program two years ago, while the euro has depreciated by only 2% since the ECB announced QE this January.
There are two reasons to think the yen is likely to weaken a lot further.
First, "We expect monetary policy to be loosened more, and earlier, than widely anticipated in Japan, whereas we think it is highly unlikely that the ECB will spring any surprises," wrote analyst Andrew Kenningham. Last Tuesday, the Bank of Japan kept its monetary stance unchanged, but analysts widely expect the BOJ to deepen its QE program as early as the next policy meeting on April 30. In contrast, the ECB is almost certain to leave its policy unchanged.
Second, the market may be losing confidence in the yen because Japan's two-year QE has achieved little.
Year to date, the PowerShares DB US Dollar Index Bullish ETF (ticker: UUP) is up 8.9%, compared with the SPDR S&P 500 ETF's (SPY) 2.2% rise.
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Shuli Ren
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April 11, 2015 00:02 ET (04:02 GMT)
11 Apr 2015, 06:02
(FROM BARRON'S 4/13/15)
[A version of this article appeared on April 8 at BarronsAsia.com]
The U.S. dollar Index rallied for the fourth day in a row last Thursday, closing near 99 for the first time this month.
With the European Central Bank and the Bank of Japan both implementing large-scale quantitative-easing programs and the Federal Reserve walking the other day, it's no surprise that most market participants expect the yen and the euro to depreciate more.
But Capital Economics made an interesting claim: that the yen will fall much further than the euro. The London-based economics specialist forecasts that by year end, the yen will weaken by another 17%, to 140 per dollar, and the euro will depreciate by only 8%, to parity against the dollar.
This forecast is surprising in that the yen has already weakened much more than the euro. The yen is down 14% since the Bank of Japan launched its QE program two years ago, while the euro has depreciated by only 2% since the ECB announced QE this January.
There are two reasons to think the yen is likely to weaken a lot further.
First, "We expect monetary policy to be loosened more, and earlier, than widely anticipated in Japan, whereas we think it is highly unlikely that the ECB will spring any surprises," wrote analyst Andrew Kenningham. Last Tuesday, the Bank of Japan kept its monetary stance unchanged, but analysts widely expect the BOJ to deepen its QE program as early as the next policy meeting on April 30. In contrast, the ECB is almost certain to leave its policy unchanged.
Second, the market may be losing confidence in the yen because Japan's two-year QE has achieved little.
Year to date, the PowerShares DB US Dollar Index Bullish ETF (ticker: UUP) is up 8.9%, compared with the SPDR S&P 500 ETF's (SPY) 2.2% rise.
--
Shuli Ren
---
To subscribe to Barron's, visit http://www.barrons.com/subscribe
April 11, 2015 00:02 ET (04:02 GMT)
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