Merrill Lynch: USD/JPY to Test 14-Year Low
July 21, 2010 at 11:22 UTC || By Forex Playmaker
The US dollar may trade at a 14-year low against the Japanese yen, as diverging monetary policies between the Federal Reserve and the Bank of Japan take hold, according to Bank of America Merrill Lynch.
The Fed may take additional easing steps in its monetary policy decisions, owing to a US economy that has, in recent months, fallen off a cliff. This has led to speculation that Fed Chairman Bernanke may announce today that the Fed will reduce the interest paid on excess bank reserves.
Tomoko Fujii, a Forex strategist at Merrill, notes that any indications of easing “would probably lead to lower U.S. yields and USD-JPY selloff, as USD-JPY is highly sensitive to yield differentials. The BOJ has an opportunity to forestall USD-JPY drops, but the BOJ’s response has tended to be too little and too late.”
According to Mr. Fujii, the USD/JPY may test the 14-year low reached in November at 84.83. The USD/JPY is last priced at 87.20.
A similar prediction made by BNP Paribas yesterday called for the USD/JPY to test the 84.95 level.
As I noted then, the USD/JPY is particularly vulnerable to the (perceived) condition of the global economy. The recent trend of disappointing economic data, should it continue, could easily send the USD/JPY below the 84.00 handle — possibly as low as 82.50 within a three-month period.
