Wakabayashi Sees Yen Rising to 74 Per Dollar by 2011 (Update1)

By Shigeki Nozawa

Dec. 3 (Bloomberg) -- The yen may rise to a record 74 per dollar by 2011 because the Bank of Japan hasn’t done enough to combat deflation, said Eishi Wakabayashi, a strategist who forecast the currency’s surge to an all-time high in April 1995.

Wakabayashi, head of Tokyo-based Wakabayashi FX Associates Co., said the BOJ should re-think its “fundamentalist” stance on combating inflation while neglecting measures to stimulate the economy.

Prime Minister Yukio Hatoyama’s government should revise the central bank’s by-laws to give it a mandate to stabilize prices and expand employment, similar to that provided to the U.S. Federal Reserve, he said.

Any attempt by the Bank of Japan to stem the yen’s advance would be “foolish and would have little effect,” Wakabayashi, 66, said in an interview in Tokyo.

The yen rose as high as 84.83 per dollar on Nov. 27, the strongest level since July 1995. Japan’s currency traded at 87.88 to the greenback as of 2:49 p.m. in Tokyo. The yen reached a post-World War II high of 79.75 in April 1995.

Japan should ask the U.S. and Europe to take coordinated action to weaken the yen, Financial Services Minister Shizuka Kamei said in an interview in Tokyo yesterday. Japan hasn’t intervened in the foreign-exchange markets since March 2004.

Brief Reverse

The dollar will briefly reverse its decline after falling to 80 yen in February 2010, Wakabayashi said. The U.S. economy may stop losing jobs around March, and the dollar’s slide will also spark inflation concern, pushing up longer-term bond yields, he said.

By the end of the third quarter of 2010, the global economy will suffer deflation as an asset bubble bursts in Brazil, Russia, India and China, collectively known as the BRIC countries, Wakabayashi said. The dollar will weaken to an all- time low of 74 yen in 2011, he said.

Wakabayashi, citing technical charts, said the dollar-yen moves in a five-year cycle. The currency pair reaches a bottom once every five years, followed by a rebound. The recent troughs came in 1995, 1999 and 2005, the strategist said.

The dollar has been declining in three-stage “waves” against the yen, Wakabayashi said. The first wave was from 1971 to 1978, when the dollar depreciated to 177 yen from 360 yen, and the second covered the period when the dollar weakened to a record 79.75 yen in April 1995, he said.

Wakabayashi said we are now in the third wave, and this will come to an end in 2011, concluding the dollar’s 62-year decline that began in 1949, when the yen’s peg to the dollar started as part of the Bretton Woods system to restrain inflation.

To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa@bloomberg.net.

Last Updated: December 3, 2009 00:59 EST