Yen May Fall to 117 per Dollar by June Next Year, Merrill Says

By Yasuhiko Seki

March 25 (Bloomberg) -- The yen may weaken to 117 against the dollar by the end of June next year as Japan’s exports drop, reducing demand for the currency from companies repatriating earnings, said Banc of America Securities-Merrill Lynch Japan.

Japan’s currency will also slide as investors complete the elimination of trades in which they borrowed in yen to purchase higher-yielding assets abroad, said Tomoko Fujii, a rates and currency strategist at Merrill Lynch in Tokyo. Fujii previously forecast the yen would weaken to 102 per dollar by June 2010.

“The combination of Japan’s shrinking current-account surplus and the completion of the unwinding of the yen-funded carry trade has weakened the currency’s safe-haven status,” Fujii wrote in a note to clients today.
The yen has dropped 7 percent this year against the dollar after Japan’s economy shrank in the fourth quarter of 2008 at the fastest pace since 1974 and the country posted its first current-account deficit in 13 years in January.

“The recycling of the small and shrinking current account surplus by capital outflows should be much easier than before, especially if the global risk environment improves on aggressive policy steps,” she wrote in a research note.

The current account was in deficit by 172.8 billion yen ($1.8 billion), the Ministry of Finance said March 9. The shortfall was the biggest since January 1985, the earliest year for which there is comparable data.
Japan’s currency traded at 97.55 per dollar and 131.33 per euro as of 7:38 a.m. in London. The yen gained 23 percent against the greenback in 2008 as global financial turmoil spurred demand for the safety of the Japanese currency.

The currency may reach 100 per dollar as early as the end of June, Fujii wrote, revising an earlier forecast for it to stand at 90 at that time.

Against the euro, the yen may fall to as low as 143 at the end of June 2010, she wrote. 

To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net
Last Updated: March 25, 2009 03:58 EDT