LONDON (Reuters) - Barclays aggressively cut its dollar/yen forecasts on Friday, saying the greenback will fall to 95 yen by the end of the year - more than 20 percent lower than the 120 yen previously reckoned - after a surge in the Japanese currency.
The British bank also cut its end-of-quarter forecast for the dollar to 100 yen JPY=, from 123 yen previously. That would be a roughly 10 percent fall from where the pair was trading on Friday.
The yen is on track for its biggest weekly rise against the dollar since late 2008, with deepening worries about global growth and about whether policymakers have enough ammunition to respond underpinning flows into the Japanese currency, which is traditionally viewed as a safe haven.
“The Bank of Japan’s remarkable success at raising Japanese inflation and inflation expectations came only by inducing excessive undervaluation of the yen that was at odds with Japan’s relative economic fundamentals, coiling a spring that only lacked a trigger,” the bank said in a research note.
Barclays also said its base-case scenario is now for the Bank of Japan to cut the interest rates it took below zero in January by a further 20 basis points to -0.3 percent in March.
The bank also said it was possible Japan would intervene in the foreign exchange market to weaken the yen for the first time since 2011, though that and the further rate cut “will do little more than add to yen volatility in this environment”.
Despite the currency’s rapid recent gains, long yen positions were attractive against all other currencies, Barclays said.
Reporting By Jemima Kelly, editing by Nigel Stephenson