This is the Asia Forum, we've managed to not talk about the yen while it has been incredibly strong in recent weeks. So here is an article to perhaps begin a conversation on whether the rise is sustainable or not:
Friday September 3, 6:28 am Eastern Time
POLL-Yen strength seen unsustainable
By Penny MacRae
LONDON, Sept 3 (Reuters) - Yen bulls beware -- the currency's near 10 percent surge
against the dollar since July is unsustainable, economists surveyed by Reuters warned.
Japan's economic recovery will disappoint investors in coming months, they said, leading
investors to push down the yen against the dollar.
'We think the market has an overly rosy view of the Japanese economy,' said Sal Gautieri of
Bank of Montreal in Toronto, who expects Japanese growth this year to be at the most one
percent.
According to the median forecast of 52 economists polled on Aug 31-Sept 3, the dollar will be
at 110.00 yen in one month and 115.00 in three, six and 12 months. The range was 95 to 145
on a 12-month horizon.
Since July, the yen has powered nearly 10 percent higher against the dollar as investors have
piled into Japanese assets as a recovery play.
Gautieri said the yen's exuberance had been exaggerated by strong capital flows into Japanese
asset markets. 'Once the market's view is unrealised, this will take the yen lower,' said
Gautieri who sees the dollar at 133 yen in 12 months.
The dollar was trading on Friday at 109.85 yen with fear of Bank of Japan intervention
keeping the currency off seven-month lows set this week.
Just last August, the dollar was trading at 146 yen. But an improving Japanese economic
outlook after years of dismal growth is siphoning investment away from the United States
toward Japan. Expectations of slowing U.S. growth have added to pressure on the dollar.
Still, scepticism abounds.
'The yen's strength is just a temporary appreciation because of expectations of a positive
rebound in domestic growth,' said Mia Rigo of Bank of America. 'But we don't think this is
something longterm -- they still have not addressed a lot of the problems.'
Others who believe the yen's prospects of further gains are limited argued Japan's authorities
will stop the yen moving higher to prevent it choking off the country's nascent recovery.
'The Japanese authorities will not tolerate an overly strong yen for a sustained period of time
and this will produce a weaker yen,' said AIB senior economist Pat O'Sullivan in Dublin.
Financial markets have been extremely nervous about potential central bank action to tame the
yen's advance. But while there has been a chorus of dollar-supportive rhetoric from Japanese
officials, there has been no detectable intervention.
'We are getting a lot of verbal intervention but so far they are doing absolutely nothing,' said
O'Sullivan.
Economists said without a further easing of monetary policy by the Bank of Japan,
intervention would be ineffective.
While respondents supplied only dollar/yen forecasts, implicit cross rates showed the yen
sliding to 132.25 against the euro in 12 months. The euro was trading around 117.63 yen
against the euro on Friday after falling to lifetime lows against the Japanese currency earlier
in the week.
Some economists remained yen bulls, however, with Adam Chester of Halifax Plc forecasting
the dollar at 100 yen in 12 months time.
He said international investors are still "heavily short of their benchmarks in the yen and a
rebalancing in portfolios towards Japan should be yen supportive.
Another bull was Kirit Shah of Sanwa International who saw the dollar at 95 yen in 12 months.
While he expected intervention at the 105 yen level, he predicted it would be ineffective.
Among factors driving yen strength were 'confidence in the financial markets as the Nikkei
heads to 20,000-22,000 over the coming months,' he said.
'With Japan holding a strong trump card in term of liquid savings and the world witnessing a
drain in liquidity as the Fed tightens...trends in capital flows and savings imbalances are now
significantly dictating valuations in both bond and exchange rate markets.'
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