The prospects for a significant depreciation in the safe-haven Japanese yen have dimmed in tandem with the US economic outlook, according to the latest Reuters poll of top foreign exchange strategists.
Analysts have spent years predicting a rally in the US dollar against the Japanese currency only to have their expectations confounded. July was the first time in five months that the 12-month consensus view for dollar/yen has shifted downwards.
The survey of around 60 strategists, taken July 1-6, saw the yen trading at 88.5 per dollar in a year's time, compared to 90 in the last five monthly Reuters polls.
Dollar/yen, currently trading at around 81, fell to 76.25 - its lowest in more than 15 years - after March's devastating earthquake and tsunami killed thousands and triggered a nuclear crisis at Fukushima that is still not resolved.
That sudden move, on expectations investors would bring home money for rebuilding and heavy selling of dollar/yen to unwind loss-making positions, triggered the first round of co-ordinated G7 intervention since 2000 to turn it around.
With recent US economic data pointing to a shaky, jobless recovery, any Federal Reserve interest rate hike will not take place until next year. A Bank of Japan move is even further off, not expected until 2013 or later. "It looks like until we get some slightly better US numbers we are kind of stuck in this very tight range," said Geoffrey Kendrick, senior currency strategist at Nomura.
The dollar is seen trading at 81.0 yen in a month, 82.0 in three and 85.0 in six months compared with 82, 83 and 85.3 respectively in the June survey.
Dollar/yen has stayed in a relatively tight range of 79.5-82.2 over the past two months as Japan's recovery from its worst disaster since World War Two has taken hold.
It is increasingly apparent that the recovery is V-shaped, with evidence on Wednesday of the biggest jump in Japanese leading indicators on record suggesting rapid progress in the economic recovery. "Now it seems the recovery in Japan is coming through a lot more quickly than people had expected. But the bottom line from the policy point of view is the Bank of Japan is likely to stay on hold for much longer," said Shaun Osborne, chief currency strategist at TD Securities.
"(There were) repatriation concerns after the earthquake and the tsunami but intervention also pulled the yen off the highs," Osborne said. The Japanese economy contracted 0.9 percent in the first quarter of this year, and is likely to have done so the second, but is expected to expand again in the current quarter, according to the latest Reuters poll of economists. The yen is expected to be more volatile in July with annualised volatility seen at 7.4 percent from an actual 6.7 percent in June.
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