NEW YORK (Reuters) - The Bank of Japan’s massive monetary stimulus plan has likely led to an overshooting of yen weakness against the U.S. dollar in the short-term but the longer-term down trend remains intact, Oppenheimer Funds’ Alessio De Longis said on Monday.
“We think the yen underperformance from this point in time on is going to be a more gradual one in terms of pace, speed, and magnitude as well,” De Longis said at the Reuters FX Summit.
The dollar rose to within striking distance of 100 yen on Monday, a level last breached in 2009.
The Japanese currency began grinding lower earlier this year, and losses accelerated in early April when the Bank of Japan said it would try to end decades of stagnation by pumping $1.4 trillion into its economy.
“What is more difficult to buy with conviction is whether they will actually be able to deliver a 2 percent inflation in such a narrow window of time,” he said.
De Longis sees some 18 months ahead the dollar trading in the 105 to 115 trading range.
“That is more like a fundamental projection, it’s not a trading forecast, rather a trading range forecast,” he said.
“We think the yen underperformance from this point in time on is going to be a more gradual one in terms of pace, speed, and magnitude as well,” he said.
The BoJ is not alone in flooding its economy with cheap funds to try to boost borrowing and spending. The U.S. Federal Reserve, the Bank of England and, to some extent, the European Central Bank have as well.
But one signal from the markets that the efforts are starting pay off has been the decline in the price of gold, a traditional source of protection in times of crisis.
“You are seeing gold fall at the same time as the stock market is rising. That is a very powerful signal. It is also telling you how much tail risk is being removed. How much investment capital has been deployed into tail hedges and fear,” he said.
Spot gold prices have risen off their two-year low of $1,321 per ounce last Tuesday, but it could be attributable more toward a technical bounce rather than a fundamental shift back in the yellow metal’s favor.
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Reporting By Daniel Bases; Editing by Chris Reese