Yen seen rallying 15% threatens Abe’s successes

Five Waves

Elliott Wave theory seeks to predict market moves by dividing trends into five chunks. The first began on Feb. 1, 2012, as the yen depreciated from 76.03 per dollar to an 11- month low of 84.18 on March 15; the second lasted until Sept. 13, when it rose to 77.13; the third ended May 22 when the yen hit a 4 1/2-year low of 103.74; and the fifth began on Oct. 8, when it touched a two-month high of 96.57, according to Miyata.

Miyata correctly predicted in May the end of the third wave, forecasting that the fifth would end at about 105.50 by about the first quarter of this year.

Mizuho Securities Co. is among firms still expecting the yen to keep falling this year as the Bank of Japan increases stimulus and the nation raises its consumption tax in April.

Growth Disparity

“Companies expect U.S. growth to accelerate this year while Japan’s economy slows on Abe’s plan to raise the sales tax,” Kengo Suzuki, the chief currency strategist at a unit of Mizuho, Japan’s third-biggest financial group by market value, said by phone on Jan. 7. He predicts the yen will weaken to 110 by year-end.

U.S. gross domestic product will grow 2.6% this year, outstripping Japan’s 1.6% expansion, according to economists surveyed by Bloomberg.

Even with growth lagging the U.S., Japan’s government has had some success in ending the 15 years of deflation that have crippled the economy and in boosting demand for its assets. Significant gains in the yen would risk undoing that hard work.

Japanese prices excluding fresh food rose 1.2% in November from a year earlier, pushing the nation past the halfway point of achieving 2% inflation. The Nikkei 225 Stock Average, the nation’s main equities market, closed above 16,000 for the first time in six years on Dec. 25.

‘What Tricks?’

Westpac expects the yen to appreciate to 99 per dollar by the end of 2014 as the Bank of Japan runs out of tools to expand monetary easing. That makes it the most bullish forecaster in Bloomberg’s currency survey after Prestige Economics LLC, which predicts a level of 96.

The BOJ announced on April 4 it would double its monthly bond purchases to more than 7 trillion yen ($67 billion). Thirty-seven% of economists surveyed by Bloomberg predicted an expansion of this monetary stimulus in the second quarter, down from 51% in a November poll.

“The near-term outlook for dollar-yen is probably skewed to the downside,” Jonathan Cavenagh, a strategist at Westpac in Singapore, said in a Jan. 7 interview. “The BOJ had a great run last year, but the market is questioning, what tricks do they have in their bag now? Any major announcements will probably have less of an impact this time around compared to last year.”

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