I like bold forecasts. Particularly predictions that employ large quantities of imagination, that look beyond the present to big figures far-departed from prevailing price levels. And yesterday, sober, often-prescient, Canadian stalwart, The BCA (The Bank Credit Analyst) did precisely thus, by predicting that Euro-Yen is enroute to YEN180 per solitary Euro.
They say that despite the impressive 80% apreciation since the bottoming of the Euro in 2000, more is in store. They say:
As we have previously highlighted, the ECB will continue to raise rates, which will underpin the euro heading forward. In sharp contrast, Japanese interest rates will not move higher as the country battles with deflation, and the economic data remains soft. Should the euro eventually break up through its previous high and head towards 1.4500, as expected by our Foreign Exchange Strategy service, and the yen holds relatively steady, the cross could get close to 180.00 and test previous highs set in the early 1990s.
Far be it from me to disagree on a lark. For I do understand that in the game of currency-market "rock-paper-scissors", relative interest rates and the bias of change thereto trumps the theoretically important aspects of trade account balance and current account balance. From this perspective, despite mighty mercantile Japan's persistent trade and current account surpluses over the past two decades, negligible unemployment, proximity to the greatest growth conjurer that the world has EVER seen, and the phenomenal accomplishments of Japanese multinational enterprises in terms of technological and market dominance, the MoF has accomplished "plenty much" through ZIRP and fiscal disabusement: They've deterred anyone and everyone from holding or bidding for YEN, including the vast majority of their own citizenry, who Bloomberg reported today now own more mutual funds with non-Japanese assets than mutual funds withn Japanese assets. This is, from the perspective of bureaucrats, a policy triumph equivalent to bringing down the Soviet Union.
Before one picks up the phone and shorts the YEN for EUR, I would point out two things. First, the demise of the Soviet Union was to some extent accidental, since the Reagan build that ostensibly bankrupted the evil empire was itself based upon flawed intelligence intercepted from the Russkies who were essentially fabricating Russia's own military-industrial infrastructure acquisition and troop-strength facts and figures to their own leadership, something American intelligence didn't consider when embarking upon their own 80s build. Secondly, Euro-Yen has been the bane of large macro traders and carried out many in 1998, and after. Now, they are requited, but short YEN IS crowded both explicitly (by financing carry trades) and implicitly, by the Bloomberg figures of Japanese capital obviously (and copiously) flowing abroad.
BCA things nothing will upset the proverbial apple cart, send the cross to 180. They may be right, but many other things must also go right and smoothly for this bold prediction to come to fruition.