UBS expects yen to rally 10 per cent as BOJ change seen soon

UBS Global Wealth Management has turned bullish on the Japanese yen, wagering that the central bank will consider adjusting its ultra-loose monetary policy stance in the coming months. 

The currency may strengthen 10 per cent against the dollar within the next couple of months and “can technically go way beyond that,” Adrian Zuercher, head of global asset allocation, said in an interview in Hong Kong. “It’s a bit of a wait and see game, but we actually think it’s rather sooner than later in June or July when they should blink a bit, not next week.” 

Some traders had positioned for the Bank of Japan to tweak policy as new Governor Kazuo Ueda presides over his first meeting next week. Japan’s elevated inflation and the illiquidity of its bond market have fuelled speculation for a change, months after the central bank doubled its yield cap on 10-year bonds to 0.5 per cent in a surprise move that jolted global markets.  

The yen traded at around 134 on Friday, having fluctuated this year amid speculation over BOJ policy. UBS Global Wealth Management projects the currency to settle around 120 at year-end.  

“Even if the BOJ doesn’t do anything it won’t hurt us. Once they start to move though it can move quickly,” said Zuercher, who is also co-head of global investment management for APAC.  

Bloomberg reported that BOJ officials are wary of tweaking or scrapping their yield control stimulus next week, preferring to wait for more progress toward achieving their stable inflation target. That echoes Ueda’s stance at his inaugural news conference that it’s “appropriate” to stand pat. 

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A Bloomberg survey of 47 economists showed that 41, or 87 per cent of respondents, expect no change at the upcoming meeting. Five expected a policy tweak. BLOOMBERG