According to two prominent American investment banks, the Japanese yen is set to turn around its poor fortunes and become the world’s best performing major currency in 2016. The investment banks of JPMorgan Chase and Morgan Stanley believe that the yen will absolutely thrive next year, putting an end to its nearly 40% decline versus the United States Dollar over the past four years.
Japan is currently enjoying a growing current-account surplus, while the expected exchange rate between the yen and the dollar is predicted to work in favor of the Japanese next year. The Japanese government will reportedly strengthen their economy through government spending and various reforms.
Co-head of United States currency strategy for Morgan Stanley Calvin Tse said, “We think the yen is going to be stronger than the dollar. We are relatively out of consensus in that we don’t expect the Bank of Japan to announce any fresh, balance-sheet expanding, easing measures over the course of the next year.”
The number of financial analysts who believe that the yen will climb to at least ¥120 per $1 has doubled since the month of September. However, some believe that the yen will perform even better than that. Morgan Stanley believes it will strengthen to ¥115 per $1 before the end of 2016, while JPMorgan expects ¥110 yen to be worth $1 by the end of next year.
Among 50 firms, the estimates for the $1 equivalent to the yen range from ¥110 to ¥135. Currently, $1 equates to about ¥123. So while not everyone is on board the yen bandwagon just yet, the number of believers in the Japanese currency is growing.
Up until 2014, the yen had been falling against 16 of its fellow major currency for the past three years. This year, the yen stabilized, suggesting that the Bank of Japan might be done with the expansion of its unprecedented monetary stimulus program. In the past year, the yen’s decline versus the dollar has been less than 3%. From 2011 through 2014, the yen fell by 36% against the dollar. Since 2011, the yen has fallen by a whopping 39% against the dollar.
The head of Japanese Markets research at JPMorgan Tohru Sasaki said, “Next year, the yen will become the strongest currency among the Group of 10. It’s a bit difficult to expect continuous yen depreciation just on monetary policy easing.”
With a stronger yen, the Japanese Central Bank should be better able to spur some desirable inflation and put more structural reforms into place. However, currencies outside of Japan might slightly weaken. Still, this effect will be limited because of rising interest rates in the United States. It is expected that the United States Federal Reserve will raise borrowing costs starting next week.
On Tuesday, the finance ministry of Japan reported a 16 consecutive month of trading surpluses. With weak oil prices and largely lackluster international currency performances, Japan has performed quite well in terms of trade. This has helped to make the yen less susceptible to foreign market shocks.
Representative of the Commonwealth Bank of Australia Joseph Capurso said, “You have these short-term effects from the policy easing, but a huge current-account surplus tends to be a powerful driver for the yen, particularly during crises. History shows that the current account is the most important influence over the long run.”
While nothing is set in stone just yet, it really appears that 2016 might be the year of the yen.