BANGALORE (Reuters) – The yen will weaken next year as the Bank of Japan expands its already massive stimulus, in an effort to drive up inflation and offset any economic drag from a planned sales tax hike, a Reuters poll found.
Wednesday’s poll of 60 strategists forecast the Japanese yen would reach 102 per U.S. dollar in a month, 103 in three months and 108 in a year, compared with the 99, 100 and 105.5 predicted last month.
A further fall in yen to 108 in a year, as the poll predicts, would take the currency to a low not seen since the depths of the financial crisis in 2008.
The yen has lost over 30 percent since October 2012, mostly because of Prime Minister Shinzo Abe’s economic policy and the BOJ’s stimulus of around $70 billion-a-month, which are aimed at pulling Japan out of 15 years of deflation and tepid growth.
The stimulus and the resulting fall in the yen propelled Japanese stocks higher – the Nikkei hit its highest closing level in six years on Tuesday – eight months after the program was announced.
But inflation is still short of the bank’s target, despite hitting a five-year high in October. A planned increase of the national sales tax in April could also curb economic growth, which slowed in the third quarter. All this will prompt more BOJ stimulus and push the yen down next year, strategists in the poll said.
“Among the major central banks, the BOJ will be the one that’s easing most in 2014. It’s leading the pack in 2014 just as it led the pack in 2013,” said Colin Asher, a senior economist at Mizuho Bank.
He expects the BOJ to announce further easing at the end of April, when the bank produces its next growth and inflation outlook, and sees the yen at 114 per dollar in a year’s time.
And while the BOJ may be likely to add more stimulus next year, the U.S. Federal Reserve is expected to scale back its asset purchases, most likely by March. That would result in a stronger dollar.
“The key driving force is the Fed starts tapering next year and the BOJ increases their asset-purchase program,” said Matthew Slade, G10 currency strategist at Nomura who forecasts the yen at 109 per dollar in a year.
Slade also expects Japanese investors to continue to take their cash overseas in search of higher returns, as U.S. bond yields rise higher and prompt an increase in carry trades.
Carry trades involve borrowing in a low-yielding currency to buy higher-yielding, usually riskier assets to earn a higher returns.
The 10-year Japanese government bond (JGB) yield was last at 0.63 percent on Wednesday. The U.S. 10-year Treasury yield was at 2.80 percent.
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(Reporting by Deepti Govind; Polling by Ishaan Gera and Sarmista Sen; Editing by Larry King)