Three-month yen-dollar forecast holds at 161 yen

'Sustained yen strength requires monetary, fiscal policy shifts'

Foreign tourists exchange currency at a money changer in Myeong-dong, Jung-gu, Seoul, on Monday. [Herald DB]
Foreign tourists exchange currency at a money changer in Myeong-dong, Jung-gu, Seoul, on Monday. [Herald DB]

A joint intervention by US and Japanese authorities pushed the yen-dollar rate down to the 155-yen range, but global investment banks have barely revised their outlooks. The prevailing view is that while the yen's slide may have been checked in the short term, a sustained strengthening trend is unlikely without changes to monetary and fiscal policy.

According to the International Finance Center's weekly IB exchange rate outlook released Wednesday, the average three-month yen-dollar forecast from 11 overseas investment banks stood at 161 yen per dollar as of the end of last month — unchanged from a week earlier. The figure excludes the highest and lowest projections.

Only Mizuho revised its forecast, trimming its three-month estimate from 161 yen to 160 yen. All other institutions held their existing projections.

BNP Paribas and Wells Fargo projected 163 yen. Citigroup and Goldman Sachs forecast 162 yen, while HSBC put its estimate at 161 yen. Barclays, JPMorgan and Societe Generale all projected 160 yen. Bank of America and Nomura were the most optimistic on the yen, forecasting 156 yen and 158 yen, respectively.

Medium- and longer-term forecasts were also unchanged. The average six-month outlook stood at 161 yen, while both the nine-month and 12-month averages came in at 160 yen. "Despite the joint intervention by US and Japanese currency authorities, overseas investment banks are maintaining a cautious outlook," the International Finance Center said in its report.

Exchange rates for the dollar, yen and other currencies are displayed at a money changer in Myeong-dong, Jung-gu, Seoul, on Monday. [Herald DB]
Exchange rates for the dollar, yen and other currencies are displayed at a money changer in Myeong-dong, Jung-gu, Seoul, on Monday. [Herald DB]

The yen-dollar rate fell more than 2 percent in just 50 minutes on Thursday night, dropping from around 162.80 yen per dollar to the 157-yen range. After it emerged that the United States and Japan had jointly intervened by buying yen, the rate fell further to the 155-yen range by Monday. It edged back up to around 157 yen on Tuesday.

Japanese authorities are estimated to have deployed about 13.78 trillion yen ($87.6 billion) over two days starting Thursday to defend the currency. The United States joined Japan in buying yen on Friday — the first joint intervention in 15 years. The exact scale of the intervention is expected to be confirmed when Japan's Ministry of Finance releases its figures on Friday.

Markets broadly assess that the move could curb yen weakness in the short term, but whether it will translate into a sustained reversal remains to be seen.

In a separate report, the International Finance Center said the intervention "may prove more effective at restraining yen weakness than past episodes, given US participation and the possibility of an early Bank of Japan rate hike."

Major investment banks see the low 160-yen range as near-term resistance and 155 yen as near-term support. For the yen to sustain a meaningful strengthening trend, analysts say structural shifts are needed — including an accelerated Bank of Japan rate-hiking cycle, a return of overseas investment funds to Japan, and an improvement in fiscal health.


rim@heraldcorp.com