The Japanese YEN is in a full-fledged rout, it is at 7-month low (against the dollar) and experts on Wall Street are betting on much more weakness to come. The basic story here is really rather simple. Morgan Stanley with its 2013 FX currency outlook: “FX Outlook 2013: The Year of JPY Weakness” – Super trendy title. So this says it all.
A big economy (Japan is the world’s 3rd biggest economy). A big election. A country at a crossroads!
As an asset, the Japanese YEN (JPY) has become less attractive because of perceived poor economic fundamentals in the Japan.
The surplus in the nation’s current account had made Japan less dependent on foreign capital to fund its budget deficit and sovereign debt, now at over 200% of gross domestic product and the highest in the developed world. Unlike many struggling European economies, more than 90% of Japan’s government debt is held by domestic investors.
A strong yen hobbled country’s efforts to return to strong growth through exports. Nothing has successfully brought the currency down for long: not jawboning, not low interest rates, not even active market intervention. The yen has remained frozen in strength.
Goldman Sachs Asset Management chair Jim O’Neill says the weakening Japanese currency deserves watching – this time. He noted the main reasons behind the strong yen were now in reverse, as Japan recently suffered a currency account deficit. Also, the exchange rate appears overvalued in light of collapsing exports, huge government debt, and a domestic economy that has seen little progress on reforms.
The Japanese YEN (JPY) has advanced 36% versus the dollar in the past 5 years - punishes exporters as it makes their goods more expensive overseas.
Even so, as the yen reached a postwar record of 75.35 per dollar last year government and the BOJ isn not doing enough to weaken the currency and fight deflation.
Japan’s strained relationship with two of the largest economies in the world “China” and “India” is another issue that doesn’t bode well.
Consumer prices have fallen an average of 0.5% per month in the past decade.
Japan’s economic growth is forecast to slow to 1 percent next year from 2.1 percent in 2012.
The Japanese YEN (JPY) could “waffle around” in coming months.
Experts on Wall Street, Hedge fund managers and other large speculators have been betting on a decline in the Japanese YEN (JPY) for the past 4 weeks.
Japan is suffering from declining terms of trade and a once solid current account surplus looks to be in decline.
From a long-term perspective, the Japanese YEN (JPY) stands out as ‘the most expensive currency.
Scale and Impact – “The Japanese YEN (JPY) is now the world’s most hated currency” is, in my opinion, the most interesting macro thing out there!