(Bloomberg) -- The yen’s rapid decline this month has some currency strategists suggesting a fall to as low as 155 or 160 versus the dollar in the coming weeks as elections in Japan and the US cast a shadow of uncertainty over markets.
That would bring it back to levels that could trigger official intervention by Japanese authorities, with the country’s finance minister Katsunobu Kato warning that he’ll “closely monitor the foreign exchange market with a stronger sense of urgency, including watching for speculative trading.”
Bank of America Corp., Mizuho Securities Co. and Asset Management One Co. are among those expecting the yen to hit 160, after the currency weakened as much as 1.4% to 153.19 against the dollar on Wednesday, its lowest since late-July. The dollar-yen is on track to post its biggest monthly gain since April 2022.
“Because the BOJ will not move in October, and if US rates remain high until December, with this speed of yen cheapening, there’s a high chance of seeing 160,” said Shoki Omori, chief desk strategist at Mizuho Securities Co.
The level is close to the mark when Japan last intervened to prop up the currency. The median forecast of the yen level that would possibly trigger intervention was at exactly 160, according to a survey of 53 economists carried out by Bloomberg.
“There is a risk of the yen weakening to 160 if short yen positions gain momentum in the short term,” said Shusuke Yamada, head of Japan currency and rates strategy at BofA Securities Japan in Tokyo. “The yen has weakened against the dollar, but the speculative long yen positions have not yet been adjusted to such an extent.”
The market is divided over how quickly the yield gap between the US Treasuries and Japanese government bonds may narrow with their respective monetary policies diverging. The picture has been muddied by robust US data and caution from the Federal Reserve about cutting interest rates. The currency pair has been jolted by US factors in recent weeks, with yen selling intensifying during North American trading hours.
“Only a very weak NFP can change the course for now,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore, referring to the closely watched US non-farm payroll report. She added she wouldn’t rule out the yen weakening past 155 to the dollar going into the US election.
Political uncertainty is hastening the yen’s decline, with Japan’s lower house election on Sunday leaving investors uncertain about the currency’s outlook. The electoral outcome may complicate the government’s communication with the Bank of Japan. Traders are also bracing for the US election that’s less than two weeks away, where those betting on a victory for Donald Trump are driving the yen lower.
“There is a sense of awareness of the fiscal risks that will arise after the presidential election, and the risk of these accelerating further if Trump is elected, so it will be difficult for long-term yields to fall in the short term,” said Hideo Shimomura, senior portfolio manager at Fivestar Asset Management Co. in Tokyo who said this was in part driving the yen’s weakness.
Some strategists see the yen weakening in the short-term, but also believe it’ll pivot once the near-term political risks subside.
“There is a possibility that the dollar-yen will rise to around 160,” said Akira Takei, a Tokyo-based fixed income manager for Asset Management One Co. “But US long-term yields will likely fall towards the end of the year, and then the yen will go back to its original level or even stronger than 150.”
--With assistance from Saburo Funabiki and Ruth Carson.
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