Several market watchers saw potential for the dollar/yen to continue its rally into year-end. JP Morgan’s Kanno targeted gains in dollar/yen by the end of December at 118 and as high as 120 by March 2006.
“As long as the Fed continues to hike the Fed funds rate in November and December, widened interest rate differentials will induce further capital outflow from Japan,” Kanno says.
Tim Mazanec, senior foreign exchange strategist at Investor’s Bank & Trust, noted that the 115 level is significant on a longer-term basis for the dollar/yen. As of late October, it had pushed above that key level, climbing as high as 115.99.
“The 115 level has been critical over the past four years as both support and resistance,” he says. “If we can stay above it, that would be extremely bullish and we could see gains toward the 122 area over the next six to 12 months.” In the Oct. 21 issue of The Global Economy This Week, analysts at Credit Suisse First Boston bumped up their three month dollar/yen forecast to 117.
“We have moved toward a more yen-negative forecast near term as Japanese investors unhedge existing stocks of hedged foreign assets, overshadowing foreign inflow to equities,” CSFB analysts wrote.
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