Yen's biggest rally in seven years splits forecasters on what's next

[NEW YORK] Foreign-exchange forecasters are the most divided about the yen in almost a year.

Japan's currency has defied predictions and rallied more than 6 per cent in February, the biggest monthly surge since 2008, as investors seek haven assets. The gulf has widened between analysts' forecasts, with Barclays Plc, the world's third-largest currency trader, projecting a further 16 per cent rally to 95 per US dollar by year-end, while Goldman Sachs Group Inc projects a 14 per cent tumble to 130 within 12 months.

The yen has been the chief beneficiary of weeks of turmoil stemming from concern that global economic growth is slowing. Investors are weighing whether this strength can last, even as the Bank of Japan carries out unprecedented stimulus policies that would typically weigh on the currency.

"We have increased our exposure to the yen from 3 per cent to an approximate current weight of 8 per cent, which represents our largest foreign currency position," said Alessio de Longis, a money manager in New York at the global multi-asset group at OppenheimerFunds Inc, which has US$216 billion under management.

He cited several tailwinds supporting Japan's currency, including haven demand, favorable valuations and cheaper energy prices.

The yen slid 1.2 per cent this week, paring its monthly gain to 6.3 per cent. It traded at 114 per US dollar as of 5 pm in New York Friday. It was up 0.5 per cent this week to 124.63 per euro.

Hedge funds and other large speculators increased net bullish bets on the yen to 52,734 contracts as of Feb 23, the most since Feb 2012, according to data from the US Commodity Futures Trading Commission.

Yen Demand

"Volatility will be sustained for the first six months on a global scale, in commodities, equities, currencies - and once you have that, yen will still be somewhat of a safe haven," said Fabian Eliasson, head of US corporate foreign-exchange sales in New York at Mizuho Financial Group Inc.

"That's going to increase yen buying and as you perhaps see the Fed getting pushed out further, that also speaks to lower dollar-yen."

The currency initially declined last month after the Bank of Japan's unexpected decision to adopt negative interest rates, and has since recouped its loss.

The BOJ is expanding unprecedented stimulus, in contrast with the Federal Reserve which has tightened monetary policy.

After declining for the past three years, further losses for the yen look limited, said Mark Astley, the London-based chief executive officer of Millennium Global Investments, which oversees about US$16 billion.

"The yen is probably the most undervalued of Group-of-10 currencies," he said.

BLOOMBERG