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The world’s worst-performing major currency looks poised for an impressive turnaround in 2023 as its two key drivers — a hawkish Federal Reserve and a dovish Bank of Japan (BOJ) — swap places in the eyes of some investors.
The yen — a favoured short against the dollar for a majority of this year — could rally more than 9 percent from current levels next year, according to Barclays Plc and Nomura Holdings, while Vontobel Asset Management AG said fair value is below 100 per dollar — over 35 percent stronger. State Street Global Markets sees a quick snap back as fears of aggressive US interest rate hikes recede, while T. Rowe Price said there’s scope for gains on a more hawkish BOJ. “We are probably approaching peak yen weakness to the dollar,” said Sébastien Page, head of global multi-asset at T. Rowe, which oversees US$1,28 trillion in assets. When the Fed finally pauses on hiking, “there is room for the Bank of Japan to surprise the market by being a bit more aggressive” on policy and boost the currency.
The bullishness is a marked change in tune from September when hedge funds couldn’t get enough of shorting the yen — a high profile casualty of the BOJ’s ultra-dovish monetary policy. The widening yield gap between the US and Japan, with the former hiking rates aggressively and the latter keeping them at rock-bottom levels to boost the economy, helped push the currency down as much as 25 percent this year.
Now a combination of direct market intervention from the Japanese government and hopes the Fed will slow its pace of rate hikes have helped the yen climb more than 10 percent from its October nadir. Speculation over a potential policy tweak from the BOJ — which will be under new leadership from April — is likely to add fuel to that rebound.
A stronger yen would reverberate past the borders of the world’s third-largest economy, potentially siphoning hundreds of billions in dollars of capital back to Japan while bludgeoning the bottom lines of the nation’s export giants. – Bloomberg
Online Reporter