Yen’s slide against dollar unlikely to last long

By MarketWatch
27th Dec 2012

The Japanese currency’s recent slide against the U.S. dollar might not last long.

Instead of a continued fall in value, some currency experts warn the yen could reverse direction, and even begin a sustained period of appreciation that would see it end 2013 at a stronger level.

Nomura Securities said in note Thursday the yen’s recent depreciation appeared to be driven more by speculation, and that the currency’s weaker tone was “ignoring fundamentals and movements in other markets.”

The research house even noted that some investors were laying on trades that the yen would soon appreciate. They noted that 20-year Japanese government bonds are beginning to look attractive. They also noted that, in what appears to be another sign the trend was drawing to a close, some investors were beginning to book profits on their short-yen positions.

Another reason to be wary is what some analysts see as a likely renewed bout of weakness in the U.S. dollar owing to the different approaches taken by the U.S. and Japanese central banks.

The U.S. Federal Reserve’s enhanced program of monthly quantitative easing, recently boosted to $85 billion, will result in greater dollar liquidity and eventual downward pressure on the greenback versus other leading currencies, according to strategist Richard Duncan.

He warned investors to avoid Japanese stocks and other investment themed around the idea of sustained depreciation in the yen.

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