Helaba Research
FX FOCUS
21 April 2016
Japanese yen
AUTHOR
Christian Apelt, CFA
phone: +49 69/91 32-47 26
[email protected]


EDITOR:
Claudia Windt
PUBLISHER:
Dr. Gertrud R. Traud
Chief Economist/
Head of Research
Helaba
Landesbank
Hessen-Thüringen
MAIN TOWER
Neue Mainzer Str. 52-58
60311 Frankfurt am Main
phone: +49 69/91 32-20 24
fax: +49 69/91 32-22 44

The US dollar has been among the losers in recent weeks. In addition to the Japanese yen,
the currencies of commodity exporters, in particular, gained ground.
This year the Japanese yen has recovered from the losses of the previous years. An
improved current account balance, a favourite valuation, and waning expectations about
hikes in US interest rates helped the Japanese currency. However, Japan’s central bank
tried to weaken the yen. The yen is likely to tend again toward weakness against the US
dollar and in part also against the euro if the US central bank does in fact continue to raise
interest rates as the year goes on.
Helaba Currency Forecast
Performance on a month-over-month basis
% vs. euro compared to the previous month (from 03/22 to 04/20/16)
US dollar
-0,7
Japanese yen
1,6
British pound
0,2
Swiss franc
-0,6
Canadian dollar
2,4
Australian dollar
1,5
New Zealand dollar
2,6
Swedish krona
0,5
Norwegian krone
2,8
Czech koruna
0,0
Polish zloty
-0,3
Hungarian forint
0,9
This publication was very
carefully researched and
prepared.
However,
it
contains
analyses
and
forecasts regarding current
and future market conditions
that are for informational
purposes only. The data is
based on sources that we
consider reliable, though we
cannot
assume
any
responsibility for the sources
being accurate, complete,
and
up-to-date.
All
statements in this publication
are
for
informational
purposes. They must not be
taken as an offer or
recommendation
for
investment decisions.
Russian ruble
2,5
Turkish new lira
1,2
South Korean won
0,7
Chinese yuan
-0,6
Indian rupee
-0,7
6,3
0,8
-0,4
South African rand
Brazilian real
Mexican peso
■ Core currencies ■ Rest of G10 ■ Currencies of emerging markets
Sources: Bloomberg, Helaba Research
HELABA RESEARCH · 21 APRIL 2016 · © HELABA
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FX FOCUS JAPANESE YEN
JPY: recovery coming to an end
Yen strength 2016
So far this year the yen has proved the strongest currency among industrialized countries. Japan’s
currency appreciated around 5 % against the euro and around 10 % against the US dollar. And this
even though Japan’s central bank not only continued its enormous asset-buying program, but in
2016 – analogous to the ECB – also introduced negative interest rates on deposits accounts of
commercial banks.
Ever since Prime Minister Abe came into office in 2012, at the latest, Japan’s politicians have been
pursuing a policy – if only an unofficial one – of yen depreciation. In fact, in the wake of the more
expansionary monetary policy, the currency lost up to 40 % in value against the US dollar by the
middle of 2015, and almost 30 % even against the euro. This depreciation was accompanied by
long-term fears about Japan: in addition to what is still a substantial budget deficit, the Japanese
government has a debt burden equal to around 230 % of GDP. At well below 1 % economic growth
is fairly lifeless in terms of a multi-year average. The fear is that the very expansionary monetary
policy will eventually lead to uncontrolled inflation and thus to another yen depreciation.
Yen recovering from losses of previous years
JPY
Sources: Macrobond, Helaba Research
Prices remain stable
Japans current account balance back to clear surplus
JPY
Net in % of GDP
Sources: Macrobond, Helaba Research
However, Japan’s inflation is once again hovering just barely above the zero mark. Beyond the
cheaper energy worldwide, prices are rising only a little. The 2 % inflation target aimed at by the
Bank of Japan is nowhere in sight. From a long-term perspective, exchange rates depend less on
growth and more on inflation. The continuing price stability should limit the concerns about the yen.
Japan’s national debt is less dramatic for the yen, since the bonds are held largely domestically.
After all, the country has posted a clear current account surplus of most recently 4 % of GDP; only
two years ago, the balance was still in the red. While the shutdown of the nuclear power plants and
the related higher energy imports weighed on the economy, above all the lower energy prices
improved the current account and trade balances. By now the first reactors have also been turned
on again.
In addition to the low inflation and the current account surplus, the yen is also being supported by
an undervaluation as measured against purchasing power parities or real exchange rate indexes.
From a long-term perspective, the yen should not be seen in a too pessimistic light,
notwithstanding some gloomy predictions. Thus, Japan’s currency is also seen as a safe
investment haven in times of crisis. That is why the yen profited from the generally nervous
financial markets in the first few months of this year. However, the delayed US interest rate hikes
played a bigger part for the dollar-yen exchange rate. US bonds defended their interest rate
advantage only thanks to the fact the yields also declined in Japan because of the monetary policy.
HELABA RESEARCH · 21 APRIL 2016 · © HELABA
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FX FOCUS JAPANESE YEN
Yen with favourable valuation despite recovery
US interest rate hikes should weigh on the yen
Index
JPY
Sources: Macrobond, Helaba Research
Sources: Macrobond, Helaba Research
Yen depreciation thanks to
more restrictive
US monetary policy
% points
In view of weaker Japanese economic indicators, the central bank stands ready to take further
measures. However, the policy becomes promising – in the sense of a yen depreciation – above all
if the US central bank plays along, that is to say, if it does continue its rate hikes over the course of
the year. If that happens, Japan’s growing yield disadvantage should put the yen under pressure in
the second half of the year, at the latest, especially since the penchant for risk is growing in the
financial markets. The dollar-yen exchange rate could then rise from below 110 at the moment to
more than 120 by the end of the year. In the wake of that, the euro should appreciate somewhat
against the yen, even though the rise in the euro-yen rate should be smaller, from 124 to 130.
Helaba Currency Forecasts
Performance
year to date 1 month
vs. Euro
US dollar
current*
Forecast horizon at end ...
Q2/2016
Q3/2016
Q4/2016
Q1/2017
(vs. Euro, %)
-3,9
-0,7
Japanese yen
5,3
1,6
124
129
130
131
131
British pound
-6,5
0,2
0,79
0,75
0,73
0,70
0,70
Swiss franc
-0,9
-0,6
1,10
1,10
1,10
1,10
1,10
Canadian dollar
5,2
2,4
1,43
1,53
1,45
1,41
1,41
Australian dollar
2,9
1,5
1,45
1,64
1,55
1,50
1,50
Swedish krona
-0,2
0,5
9,18
9,10
9,00
8,80
8,80
Norwegian krone
4,8
2,8
9,17
9,30
9,00
8,70
8,70
Chinese yuan
-3,3
-0,6
7,33
7,71
7,48
7,14
7,14
vs. US-Dollar
1,13
1,15
1,10
1,05
1,05
(vs. USD, %)
Japanese yen
9,5
2,3
110
112
118
125
125
Swiss franc
3,1
0,1
0,97
0,96
1,00
1,05
1,05
Canadian dollar
9,4
3,1
1,27
1,33
1,32
1,34
1,34
Swedish krona
3,8
1,2
8,13
7,91
8,18
8,38
8,38
Norwegian krone
8,9
3,5
8,12
8,09
8,18
8,29
8,29
Chinese yuan
0,4
0,3
6,47 1,57
6,70
6,80
6,80
6,80
US-Dollar vs. …
(vs. USD, %)
British pound
-2,7
0,9
1,43
1,53
1,51
1,50
1,50
Australian dollar
7,0
2,3
0,78
0,70
0,71
0,70
0,70
*20.04.2016
Sources: Bloomberg, Helaba Research 
HELABA RESEARCH · 21 APRIL 2016 · © HELABA
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