December 26, 2013 7:00 pm JST

Experts see weaker yen, more easing by Bank of Japan in 2014

RIE MORITA, NQN staff writer

TOKYO -- The dollar touched the upper 104 yen range on Thursday, its strongest showing since Oct. 6, 2008. At the end of 2012, the dollar was worth around 86 yen. Experts predict the dollar will continue to strengthen in the new year.

     According to a Nikkei Quick News survey of nine market experts, the dollar is expected to trade at an average of 111.33 yen at its highest and 98.61 yen at its lowest in 2014. All nine said the yen will continue to fall against the dollar. Two said the dollar will reach 115 yen. Yuki Sakasai, a foreign exchange strategist at Barclays, said the Japanese currency will eventually settle at the 100 line against the dollar. This view is supported by many market players.

     Most of all those surveyed said the yen's fall against the dollar will be led by the gap between Japanese and U.S. monetary policies. At the two-day meeting of the U.S. Federal Open Market Committee that ended Dec. 18, the Federal Reserve decided to start reducing, from January, its purchases of assets in stages, which would be a step toward ending its third round of quantitative monetary easing introduced in September 2012.

     The Bank of Japan, however, appears to be almost certain to introduce additional monetary easing. Every person surveyed expects this. The timing, according to the respondents, will range from the January-March period to July. Osamu Takashima, chief foreign exchange strategist at Citigroup Global Markets Japan, said the BOJ will take additional measures that focus more on the qualitative, rather than quantitative, part of its monetary easing. This view is almost unanimously held in the survey. Many respondents expect the BOJ to increase purchases of 10-year Japanese government bonds and risk assets, including exchange-traded funds.

     Minori Uchida, chief analyst at Bank of Tokyo-Mitsubishi UFJ, said the BOJ should consider setting thresholds for certain readings such as the consumer price index and nominal gross domestic product, to decide whether to continue purchasing assets. Such a threshold-based monetary policy is similar to the forward guidance taken by the Fed, which intends to keep its federal funds rate essentially at zero unless the unemployment rate falls below 6.5% and inflation rises to 2%.

     Japan's 17 months of continuing trade deficit, fundamental changes in the supply-demand structure and growing worldwide risk-taking appetite driven by U.S. economic recovery are also supporting the prediction that the yen will fall against the dollar. Toru Sasaki, head of foreign exchange research at JPMorgan Chase Bank, said the NISA program, the Japanese version of Britain's individual savings account (ISA) system, which will begin in January, will prompt retail investors to increase overseas investment. Some respondents said the program will help boost purchases of foreign currencies for the yen.

     Four experts predict that the dollar could briefly fall below 100 yen because it is highly likely that Japan's consumption tax hike from April will temporarily weigh on its economy.