Yen weakness to persist, 100 per dollar beckons

LONDON: The yen's slide still has momentum after three months, with more investors emboldened to take bets against the currency as they position for a shift to a much looser fiscal and monetary policy in Tokyo.

Some expect the yen to fall to 100 per dollar in coming months, a level last seen in April 2009, from around 89 currently, as new Prime Minister Shinzo Abe's administration prepares to pump-prime the economy by issuing more bonds and pile pressure on the Bank of Japan to print more yen.

There is also speculation BOJ chief Masaaki Shirakawa, who retires in April, will be replaced by someone more amenable to Abe's wish for a much more aggressive monetary policy setting.

In addition to doubling the inflation target, a measure the BOJ adopted on Tuesday, the government has spoken of steps such adding employment to the central bank's mandate of price stability and possible changes to the bank's governance.

So the potent mix of loose fiscal policy, easier monetary policy and potential uncertainty over the central bank's independence make the yen well-placed for more weakness, analysts and traders said.

"The policy change that is taking place in Japan is very significant and will lead to sustained yen weakness," said Ian Stannard, FX strategist at Morgan Stanley.

Morgan Stanley expects the dollar to be at 100 yen by the end of this year and at 105 yen by the end of 2014, compared to the previous forecasts of 90 yen for both periods.

In the options market, investors such as macro funds which allocate funds based on economic trends, are considering bets that the dollar will touch 100 yen.

"We are certainly seeing a fair bit of demand for options targeting 100 yen in the next 12 months," said a chief options trader at an European bank in London. Also, "there is more demand for 95 yen strikes with a three- to six-month horizon."

While a move to 100 yen would be welcomed by Japanese exporters, who have for years endured and budgeted for a stronger yen, it would likely irritate policymakers in Washington who are pinning their hopes on a weak dollar to encourage US exports especially to Asia.

A sharp weakening of the yen would also raise eyebrows - and provoke possible retaliatory measures - in Europe.

Citing pressure on the BOJ, European Central Bank policymaker Jens Weidmann said on Monday that pressing central banks to pursue more aggressive monetary policies could risk a round of competitive devaluations.