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Korea braces for fast yen depreciation

Publication Date : 12-02-2013

 

Korean exporters may need to brace for rough sailing in overseas markets earlier than expected as Japan prepares to accelerate the depreciation of its currency to jumpstart its economy, analysts said.

Foreign investment banks and domestic securities companies have drawn their outlooks for the Japanese yen to further weaken faster than their initial estimation, forecasting its value to drop over 100 yen to the dollar as early as the second half of this year.

The general consensus among investment banks shows that the yen-dollar rate, currently hovering above 92 yen, will reach between 100 and 105 yen by the end of this year.

Their initial forecast was that the Japanese currency would likely fall as low as 90 yen in 2013, while domestic securities companies predicted the yen to fall as much as around 100 by early 2014.

Credit Suisse forecasted the yen-dollar rate will reach 105 yen, higher than Morgan Stanley or Macquarie’s predictions at around 100 yen, according to analysis and media reports.

Domestic analysts such as Hyun-dai Securities did not rule out the possibility of the yen reaching 100 against the dollar in the second half, and the exchange rate maintaining well above 100 yen next year.

Hyundai Securities had forecast that the rate would reach 95 yen by the fourth quarter of this year.

With the resignation of Bank of Japan Governor Masaaki Shirakawa before the end of his official term scheduled for April, Japan’s Prime Minister Shinzo Abe’s policy promoting a weaker yen and 2 per cent inflation will take effect sooner than market expectations, analysts said.

The BOJ governor announced his resignation last week without explanation, but told the press that he is not stepping down because of government pressure.

There has been speculation that the governor had been “at odds” with the prime minister over monetary policy in which Abe wanted the central bank to ease for a weaker yen and higher inflation in an effort to reinvigorate its ailing economy.

Following Shirakawa’s resignation, the yen-dollar rate reached over 94 yen during trading, the highest since May 2010.

Analysts said that it remains to be seen whether the yen deprecation would slow down this month as G-20 finance ministers and central bank governors convene for a meeting in Moscow this week.

Several G-20 economies have expressed discontent against Japan’s weak yen policy, and the issue is most likely to be raised at the G-20 meeting.

 

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