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Yen May Rebound on BOJ Rates
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crazy_money
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02-Jan-2007 10:21
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buy more yen... |
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ROI25per
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02-Jan-2007 10:20
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What money can we make if we know this will happen? Yen May Rebound on BOJ Rates, Say Analysts Who Anticipated Drop By Agnes Lovasz and Ye Xie Jan. 2 (Bloomberg) -- Bank of Tokyo-Mitsubishi UFJ Ltd., Barclays Plc and Investors Bank & Trust Co., among the handful of firms that correctly predicted last year's drop in the yen, say the currency will rebound as Japanese interest rates rise. The yen may jump 8 percent to 109 against the dollar in 2007, the most in three years, and climb for the first time since 1999 versus the euro, according to the average of forecasts in a Bloomberg survey of 40 analysts. Economists estimate the Bank of Japan will raise interest rates at least twice by the end of March, after central bank Governor Toshihiko Fukui told business leaders in a Christmas Day address that increasing wages may stoke inflation. Most strategists predicted a rally in the yen last year only to see hedge funds and Japanese investors spurn the currency for higher- yielding markets. ``We're looking for appreciation,'' said Osamu Takashima, chief analyst for global-market sales and trading at Tokyo-based Bank of Tokyo-Mitsubishi, the nation's biggest bank. He raised his year-end forecast to 110 to the dollar from 112 last month because ``Japan is in a tightening cycle.'' The yen fell 0.2 percent last week to 119.14 against the U.S. currency and lost 0.6 percent to close at a record low 157.13 versus the euro after Fukui also said Dec. 25 that consumer spending is ``somewhat weak.'' Rate Increases ``Our view is the yen will be at 110 by the end of the year,'' said Toru Umemoto, chief currency analyst at Barclays Capital in Tokyo. ``We see four interest-rate hikes this year.'' Fukui raised the overnight lending rate in July for the first time in almost six years, to 0.25 percent. The BOJ, which next meets Jan. 17-18, will boost rates twice to 0.75 percent by March 31, a Bloomberg survey of economists on Dec. 13-20 showed. In the survey, 38 analysts said the yen will gain and one firm, Charlotte, North Carolina-based Wachovia Corp., predicted no change. Gerry Celaya, chief strategist at Red Tower Research in Aberdeen, Scotland, is the only forecaster who says Japan's currency will fall this year, to 122 yen to the dollar. Traders are siding with Celaya. The yen fell 11 percent against the euro last year, the most since the introduction of the single currency, and 13 percent versus the U.K. pound, the biggest drop since 1992, as central banks in Europe raised rates faster than in Japan. The dollar rose 1.2 percent against the yen for 2006. The difference in the number of wagers by hedge funds and other large speculators on a drop in the yen compared with those on a gain -- so-called net shorts -- was 92,519 on Dec. 19, compared with 55,560 a week earlier, data from the Washington- based Commodity Futures Trading Commission show. Rates Near Zero Japanese investors bought a net 96.9 billion yen in overseas bonds last year, more than four times their net purchases in 2005, according to data compiled by Bloomberg. Benchmark rates in Japan close to zero percent have prompted investors to borrow yen and sell it to buy assets denominated in higher-yielding currencies, known as the carry trade. ``Carry has been a very powerful force,'' said Harriett Baldwin, head of currencies in London at JPMorgan Asset Management, which oversees $50 billion. ``For that force to stop, you're going to have to have the BOJ raise rates quite considerably.'' The extra yield on U.S. 10-year Treasuries over similar maturity Japanese debt was 3.04 percentage points on Dec. 29 and the premium offered by German 10-year bunds reached 2.27 points, the most in almost two years. Traders in December added to bets that the European Central Bank will lift rates twice in 2007 to 4 percent, futures contracts show. They cut wagers the Federal Reserve will reduce borrowing costs to 5 percent after a two-year cycle of increases. Analyst Forecasts Analysts' predictions for a stronger yen may stumble should the BOJ fail to step up its rate increases, according to Tim Mazanec, a senior currency strategist at Investors Bank. His firm expects the yen to rise to 114 versus the U.S. currency. Last year, the euro gained 11 percent against the dollar as the ECB raised rates five times and the Fed stopped lifting borrowing costs in June. The dollar strengthened 14 percent versus the euro in 2005 as the Fed raised rates eight times and the ECB only once. Bank of Tokyo-Mitsubishi, Barclays and Investors Bank were among 11 of 53 firms Bloomberg surveyed last January that forecast the yen would drop against the dollar in 2006. Bets on when the Bank of Japan will lift its benchmark may cause its currency to fluctuate more this year, increasing the cost of carry trades. Lower volatility reduces the risk of having to pay back borrowings in Japan at a stronger exchange rate. Smaller Price Swings The Japanese currency's volatility fell last month to the lowest since at least December 1995, when Bloomberg started tracking the data. The so-called implied volatility for a three month period, or traders' estimates for the amount the currency will fluctuate on an annualized basis, slid to 6.425 percent on Dec. 20, from 8.475 percent at the end of 2005. ``Volatility is going to go higher,'' said Bhanu Baweja, head of emerging market currency strategy in London at UBS AG, the second-biggest trader of foreign exchange. ``The time when you could have a carry trade position and hold it forever is gone.'' To contact the reporters for this story: Agnes Lovasz in London at alovasz@bloomberg.net ; Ye Xie in New York at yxie6@bloomberg.net . |
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