Yen tipped to underperform this year

Foreign currency analysts are tipping a weaker yen as one of the major trades in 2013, after the Japanese currency lost more than 10 per cent of its value against the dollar last year.

The Japanese yen is forecast to fall against the US dollar this year after a new government was elected in December that has vowed to put pressure on the Bank of Japan to do more to kick-start the economy and weaken the currency.

“One of our key views for 2013 is a move higher in the dollar-yen, which . . . is based on the potential for a ‘new BoJ’ that is more proactive in terms of easing when the new governor of the BoJ is appointed in April 2013,” says Jens Nordvig, strategist at Nomura.

Alan Ruskin, head of foreign exchange strategy at Deutsche Bank, expects the yen to trade at Y90 against the dollar at the end of the year, down from its present level of Y86.35.

Analysts are also forecasting that investors will start using the Japanese yen as a funding currency for riskier bets elsewhere once more, which will put further downward pressure on the currency.

“A significant and sustained weakening of the yen is expected during 2013, as we anticipate the yen taking on a broader funding currency role,” say analysts at Morgan Stanley, who forecast that the dollar will rise to Y89 against the yen by the third quarter of the year.

There is less appetite for betting the euro will fall significantly in 2013 than the previous year, after the single currency surprised many market participants to rise against the dollar in 2012.

Deutsche Bank forecasts the euro could touch $1.35 in the first quarter of the year as speculators continue to close their short positions in the single currency. But the bank believes the euro will fall closer to $1.20 as the year progresses, as investors focus more on the stuttering eurozone economy.

Analysts at Morgan Stanley also think the euro could touch $1.34 in the first quarter but will fall to $1.25 by the third quarter, forecasting that the European Central Bank will take further action to stimulate the economy, putting downward pressure on the euro.