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Yen Outlook '101': Where The Currency Goes From Here

posted 10 May 2013, 04:15 by Mpelembe Admin   [ updated 10 May 2013, 04:16 ]

 

Reuters Business  Report - REUTERS REPORTER, YONGGI KANG

"Up until yesterday, a dollar wouldn't get me anything at a 100-yen shop, like the one you see behind me. But now, my choices are endless."

That's right, the yen has finally done it - smashed below the psychologically key 100 to the dollar mark. Now that the milestone's been breached, everyone's wondering - what's next?

Well, there are good reasons to doubt the yen will slide much further.

One is diplomacy.

JAPANESE ECONOMICS MINISTER, AKIRA AMARI

"Neither the government nor the central bank has any intention to manipulate the currency. Our only goal is to stop the negative spiral caused by deflation."

Okay, so the economics minister insists Japan's not playing currency tricks. But how long are big trading partners like the U.S. going to keep their mouths shut if the yen keeps falling?

The second reason is aggressive monetary policy. The Bank of Japan became the most radical of all major central banks with its massive easing push.

But if a weaker economy prompts the Fed to shift its stance and start printing more money, that's going to mean more dollar weakness and yen strength.

The third reason is import costs. Prices of goods like wheat and cooking oil are already starting to rise.

Japan has become more dependent on imports of fossil fuels since the Fukushima nuclear accident.

If rising energy costs start to crimp consumer spending, politicians might not see the soft yen as such a good thing.

REUTERS REPORTER, YONGGI KANG,

"Most analysts expect the yen to stay below 100 over the next year, so the dollar will go far at shops like this for some time. But don't expect it to hit 120 anytime soon."


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