Singapore dollar seen to depreciate against yen

THE Singapore dollar might depreciate against the Japanese yen, to under 100 yen in a 12-month horizon, which could boost the relative attractiveness of Japanese stocks to Singapore investors.

The prevailing spot rate is 103.5.

The Singapore dollar might first breach 105 yen – a level last seen in October – in the third quarter of this year, said senior foreign exchange strategist at UOB, Peter Chia. He does, however, see it gradually depreciating to 97.7 yen in the second quarter of 2024.

Yen movements have been driven largely by the changes in relative bond yields and monetary policy, said NatWest Markets emerging markets strategist Galvin Chia.

What the Bank of Japan (BOJ) does next, particularly in its July meeting at which it will review its policy stance and update its economic forecasts, is of greater importance, he said.

Bank of Singapore’s forecast is for the Singapore dollar to fall to 92 yen over the next 12 months.

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As the BOJ is expected to keep rates at very accommodative levels to entrench inflation at its long-term 2 per cent target, this would be supportive of Japanese equities, said Bank of Singapore’s head of investment strategy Eli Lee.

A stronger yen may also attract foreign investors to buy Japanese assets as well as hold the currency for its safe-haven status, in turn further supporting the yen’s strength, said FSMOne.com’s assistant manager of the research and portfolio management team, Tan De Jun.

Significant appreciation in the yen could, however, affect the profitability of Japan’s exporters.

Havard Chi, head of research at asset manager Quarz Capital Asia (Singapore), said Japanese exporters’ sales and profitability have benefited from significant depreciation of the yen in recent years.

And appreciation would be a double whammy for exporters, as they would receive lower revenue due to foreign currency translation and while their prices rise comparatively when selling to foreign markets.

“In addition, their cost base is also in yen,” Chi said.

Hospitality players, on the other hand, will benefit from the yen appreciation. Investors who convert the yen into their home currency will also benefit when the yen rises.