Investment: Dollar-yen could drop to 135 in ‘near future’: Wells Fargo

This illustration shows 10,000 Japanese yen banknotes in Tokyo on November 19, 2021. The Japanese currency has weakened sharply against the dollar in recent weeks amid Central Bank expectations. Japan will lag behind its peers in normalizing monetary policy.

Behrouz Mehri | AFP | beautiful pictures

The Japanese yen Brendan McKenna of Wells Fargo Securities, said further weakness against the US dollar is possible if the policies of the Bank of Japan and the Federal Reserve continue to differ.

“We definitely see a move up to 130, we think that’s definitely possible,” McKenna told CNBC on CNBC’s “Squawk Box Asia” on Wednesday.

“Assuming BOJ policymakers continue to commit to their easy monetary policy framework…, we think a step up could be 135. [yen per dollar] said forex strategist.

The yen fell nearly 6% against the greenback in March and continued to suffer losses in April.

The Japanese currency has struggled to appreciate against the dollar amid expectations the Bank of Japan will lag behind its peers, such as the US Federal Reserve, in monetary policy normalization.

On Wednesday, the yen saw a partial recovery against the dollar after The Bank of Japan said it would offer unlimited purchases of 10-year Japanese government bonds at 0.25%. It last traded around 128.20 per dollar, representing a slide of more than 5% against the greenback so far this month.

Despite the recent weakness, Central Bank of Singapore’s Sim Moh Siong said the Japanese currency “is still a long way from the real alarm bells ringing.”

The Japanese authorities have so far used verbal intervention instead of the historic method of selling dollars and buying yen, said Sim, a currency strategist at the firm.

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For now, the Bank of Japan appears to be prepared to “live a peaceful life by buying unlimited amounts of bonds,” he said.

“If you look at historical periods … the level of intervention tends to be concentrated around the 127 to 132 level,” he said. “I suspect that we may need a higher level in the dollar-yen for timely intervention.”

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