September 5, 2012 / 3:29 PM / 5 years ago

Yen forecasts on ice, await Fed's next move: poll

BANGALORE (Reuters) - Japanese yen forecasts were frozen in the latest Reuters foreign exchange poll, showing a lack of conviction amongst strategists despite signs of an improving picture in major trading partner the United States.

Forecasters have been increasingly reluctant of late to make big bets on a depreciation in the yen, having been burned by the currency’s relentless strength in recent years on safe-haven bids.

But there was an almost total lack of movement among consensus views across the various points over the 12-month horizon, as well as consistent spreads of forecasts.

A refuge for investors looking for a quick place to park cash, the yen has weakened about 2 percent against the dollar so far this year, clawing back some of the 6 percent rise it clocked in 2011.

That, said some analysts, is a reflection of the fact that Japanese policymakers remain concerned about yen strength, due to Japan’s dependence on exports, and will likely to do whatever it takes to prevent it from appreciating any further.

If the U.S. Federal Reserve takes a third stab in September at printing money - or QE3 - as many in the market suspect, the Bank of Japan, which is sounding increasingly pessimistic about the domestic outlook, is likely to follow suit.

“The BoJ will respond to whatever the Fed does, and I think the Fed will probably ease policy further. It does look like we will get improvements in the U.S. economy, especially in the labor market, but the improvements will not be sustainable or substantial,” said Colin Asher at Mizuho Corporate Bank.

“My best guess is that the Fed will probably extend the time frame of (holding) interest rates rather than go for asset purchases, which I think they will leave in the tank until after the elections.”

The United States goes to the polls in the first week of November and many investment decisions and in corporate boardrooms appear to be frozen until then, as well as until the full impact from an expected fiscal tightening in early 2013 can be gauged.

Expiring tax breaks and decreased government spending are all expected to slow the U.S. economy in the first quarter of next year. Uncertainty around the so-called “fiscal cliff” has already resulted in businesses deferring hiring plans.

Either way, it would appear that forecasters, who often move their views according to the way the currency trades each month, are waiting for a decisive break in the yen’s strength before they change their views.

The Reuters poll of more than 60 strategists taken September 3-5 showed dollar/yen trading at 79 between now and November, roughly around where it was earlier on Wednesday. In a year, it is expected to weaken to 83 yen per dollar.

But Japan’s moribund economy will also play a part, even if the central bank is mostly powerless to have any major effect on economic growth.

“It is an interest rate cycle bet and subordinate to that I am not too enthused about the picture for the Japanese economy,” said John Hardy, FX strategist at Saxo Bank.

Ryuzo Miyao, seen as one of the most pessimistic BOJ board members, warned on Wednesday that risks for the world’s third-largest economy were rising due to a stubbornly strong yen and a sluggish global economy.

The BoJ expects the Japanese economy to grow by 2.3 percent in the year to March 2013 and an inflation rate of 0.3 percent. Analysts, however, feel the BoJ’s estimates will probably be revised down when it releases its semi-annual outlook in October.

Euro/yen forecasts in the poll also remained largely unchanged as compared to the last survey even with no resolution of the over two-year old debt crisis in sight.

The euro is expected to fetch between 96 and 98 yen between now and February next year and 101 yen in a year.

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