The yen is destined to strengthen past 100 per dollar for the first time in four years, analysts say, and there is little policymakers can do to stop it.
From J.P. Morgan and Citigroup to MUFG Bank, Tokyo-based strategists see the yen breaking that barrier as early as the next few months.
A stronger currency would squeeze export-reliant Japan Inc., which is already struggling to deal with the pandemic’s hit to demand. Overseas shipments are suffering their longest stretch of declines on record.
New Prime Minister Yoshihide Suga has ordered Finance Ministry officials to defend the 100 line with intervention if necessary, the Nikkei newspaper reported at the weekend.
Japan’s currency touched 102.88 per dollar this month, from near 110 as recently as June, as the dollar weakened broadly on expectations U.S. politicians would agree massive fiscal spending, brightening the economic outlook.
It’s precisely because the move is driven by dollar weakness, not yen strength, that intervention isn’t viable, the strategists said.
The U.S. current account deficit, compared to Japan’s surplus, also puts structural pressure for the yen to strengthen gradually versus the dollar, they added.
“From an economic perspective, Japan can’t justify intervening,” said Tohru Sasaki, J.P. Morgan’s head of Japan market research, who sees the currency pair reaching 98 next year.
“The dollar-yen market will not move how the Japanese prime minister wants.”
Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan, expects the rate to be 97 by end-2021, with 100 breached during the second quarter.
Because the overarching backdrop for dollar weakness is an improving global economy, it will be accompanied by stock market strength, including in Japan, he said.
“Under such circumstances, it’s very difficult to find any good excuse to stop yen appreciation, so intervention will be very difficult,” Takashima said.
“Yen appreciation is always painful for Japanese exporters, but which level is the critical level is very difficult to judge.”
A Cabinet Office survey conducted December 2019 to January 2020 found listed companies identified 100.2 yen per dollar as the tipping point between profit and loss.
Japan has not intervened in currency markets since 2011, when the March 11 earthquake and tsunami crippled the economy and sent yen soaring to a record around 75 per dollar on a rush to safety.
“It’s very difficult for the Japanese Ministry of Finance to intervene in the current situation because the move itself is very slow, not volatile,” said Minori Uchida, chief currency strategist at MUFG Bank.
“There is a chance to see 100 by the end of March.”