Yen set to weaken, timing of Fed's QE taper to weigh: Reuters poll


A weaker yen is likely for at least a year and how much it eases in the near term will depend on how soon investors expect the U.S. Fed to start reducing its stimulus, a Reuters poll found.

The yen has weakened 13 percent this year, mostly since the BOJ pledged in April to end deflation by pumping vast quantities of money into the economy.

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The poll of over 55 currency strategists, conducted August 7-9, showed the dollar at 98.5 yen in one month, 102 yen in three months and 107 yen in a year, compared with expectations of 100, 102 and 107 yen in last month's poll.

Dollar/yen has see-sawed over the past two months as mixed U.S. data have swung investors' views on whether the Fed will trim its $85 billion monthly bond buys in September or later. See Reuters Poll

The dollar hit a seven-week low of 95.81 yen on Thursday.

"The risk is that the Fed holds off from beginning to taper QE (quantitative easing) in September and that could put some modest downside pressure on dollar/yen," said Lee Hardman, a currency economist at BTMU in London.

"Having said that, I do think from current levels the downside is fairly limited."

Although only a little over a third of the analysts polled expect the yen to weaken in one month, as the year progresses the count increases.

The vast majority, 44 of 55, expect the yen to depreciate in three months. Fifty of 56 say it will in six months and almost all respondents - 53 of 56 - say it will be weaker in a year.

Weaker yen bias over the coming year is mainly driven by expectations of divergence in central banks' policies.

"It is very clear that the Fed's monetary policy will be normalized much earlier than that of the BOJ," said Yujiro Goto, foreign-exchange strategist at Nomura.

The Fed has suggested it could start easing the pace of its monetary stimulus, while the Bank of Japan pushes through aggressive plans to end two decades of deflation.

David Marmet, a currency strategist at ZKB who was the most accurate forecaster in the July Reuters forex poll, also expects the yen to fall against the dollar.

"The Liberal Democratic Party has a majority now in both Chambers of the Parliament and this will help. Abenomics will work," said Marmet, referring to the policies mandated by Prime Minister Shinzo Abe.

(Polling by Hari Kishan and Deepti Govind; Analysis by Ashrith Doddi; Editing by Ruth Pitchford)