Yen seen strong near-term on global economy worries

The Japanese yen will likely hold relatively strong for the rest of this year, benefiting from its safe-haven status amid growing signs the global recovery is not on a solid footing, a Reuters poll showed.
The survey of 61 foreign exchange strategists, taken between June 2 and 7, saw the dollar at 82.0 yen in a month, 83.0 in three and 85.3 in six months before weakening to 90 by May 2012.
That call is largely unchanged from the last poll, although strategists over a period of many years have been caught wrong-footed forecasting a weaker yen.
Over the past year, the yen has strengthened about 12 percent on the back of US dollar weakness due to the Federal Reserve's loose monetary policy and Japanese investors scurrying to meet payment obligations in the wake of the worst earthquake-tsunami to hit the island nation since Kobe in 1995.
Devastation caused by the earthquake on March 11 and the ensuing tsunami and nuclear crisis pushed the nation into a recession in the first quarter.
"It's hard to move away from your thoughts," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets, describing the bias many analysts have towards a weaker yen that just does not materialise.
"What's preventing the yen from weakening over the past year is consistent US dollar weakness and some repatriation flows after the earthquake."
While the end in June of the Fed's $600 billion worth of bond purchases, the second leg of a $2.3 trillion quantitative easing programme known as QE2, is expected to help the greenback, lacklustre economic data in recent weeks has undermined the credibility of the US recovery.
The dollar hit a one-month low below 80 yen on Tuesday on expectations the Fed will maintain its ultra-low interest rates longer than earlier thought after jobs data released last week showed the US economy added a mere 54,000 jobs in May, barely one-third of the amount expected.
Notwithstanding the recent strength in the yen, the dollar is seen regaining some lost ground in a year, on expectations the Fed will raise rates sooner than the Bank of Japan, driving up treasury yields in favour of the greenback.
"Rising US yields and the threat of intervention at high yen levels should push dollar/yen back to 90," said Chris Walker, G10 foreign exchange strategist at UBS.
Indeed, a majority of common contributors in the May and June polls have forecast a stronger yen in the one-month and three-month horizons but have largely left their call for eventual yen weakness in 12 months unchanged.
"Once burnt, twice shy. People are being less aggressive now for the yen to weaken especially with the forecasts for the global economy being turned down just a little bit," said Reitzes.
He added that the yen has been particularly hard to forecast with "the constant threat of intervention, the earthquake and tsunami, and the weakening global outlook each making things difficult".
The recent strength in the yen may prove to be costly. Following the quake, tsunami and nuclear crisis, the manufacturers that power the export-driven economy are still trying to restore their supply chains.
While strategists agree the Bank of Japan will intervene if the yen strengthens too much too quickly, analysts are unsure of what level the BoJ will want to defend.
"If the yen moves quickly - one or two yen in a day - that's when we will see some intervention. But I think that because this is a dollar weakness story, not necessarily a yen strength story, they will be a little bit more reluctant to intervene."