JPY likely to appreciate 1.9% against USD in 2016

In spite of monetary easing bias in Japan, the JPY appreciated against the US dollar in early 2016. It gained 11% against the US dollar year-to-date. However, the yen is expected to return to its earlier path of depreciation due to the country’s fundamental economic weakness such as monetary easing, huge public sector indebtedness, insufficient structural reform and unattractive interest rate differentials in comparison to other economies, noted Scotiabank. But the Japanese yen is expected to be supported for a brief period of time by occasional bouts of investor risk aversion in 2016.

“We expect USDJPY to close the year at 118, 1.9% stronger since the end of 2015”, added Scotiabank.

Meanwhile, the country has a weak sovereign debt profile. Gross public debt is likely to reach 248% of GDP in 2016-17, according to Scotiabank. S&P downgraded the country’s sovereign credit rating to “A+” in September 2015. It assessed that the plan of Japanese government to recover the economic growth and put an end to deflation has failed to support the earlier rating.