Goldman Sachs said the yen and euro will weaken on further quantitative easing (QE) in Japan and Europe, while the Federal Reserve refrains from raising interest rates when US policy makers meet this week.
The Japanese currency will decline to 130 versus the dollar in 12 months as Bank of Japan Governor Haruhiko Kuroda is set to boost monetary stimulus in October, Goldman Sachs analysts, including Robin Brooks, the chief currency strategist in New York, wrote in a report. The euro will decline to 95 cents next year as the European Central Bank expands its asset- buying program to meet its inflation goal, they wrote.
The euro and yen’s strength amid the global market rout triggered by China’s surprise devaluation of the yuan in August provides investors with an opportunity to sell the currencies, they wrote. Japan’s currency has gained 6.2pc in the past three months, the most among 10 developed-nation peers, while the European counterpart has appreciated 4.3 percent, Bloomberg Correlation-Weighted Indexes show.
“The RMB devaluation one month ago, and the resulting spike in risk aversion, have muddied the waters in FX,” the Goldman Sachs analysts wrote. “Risk aversion has increasingly decoupled price action from fundamentals in recent weeks, which presents an opportunity.”
The yen was little changed at 120.42 per dollar at 12:39pm in Tokyo, while the euro rose 0.1pc to $1.1350.
Japan’s Liberal Democratic Party lawmaker Kozo Yamamoto, who has advised Prime Minister Shinzo Abe on economic policy, said last week the BOJ should increase annual asset purchases by at least 10 trillion yen.