While Prime Minister Shinzo Abe piled pressure on the Bank of Japan to weaken the yen last week, the Federal Reserve struck the first blow against the currency.
A signal from Fed board members that they may end bond purchases in 2013 helped drive the yen to a 2½-year low of 88.41 per dollar on Jan. 4, still 15 percent stronger than its decade average. The extra yield on 10-year Treasuries instead of similar-maturity Japanese government bonds reached 1.13 percentage points last week, the most in nine months, attracting funds into dollar assets.
The yen’s actual value last year was 103.9 per dollar after taking into account differences in consumer prices between Japan and its trading partners, according to estimates from the Organization for Economic Cooperation and Development.
“The dollar-yen rate will rise beyond 90,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co., Japan’s second-biggest brokerage. A full-fledged U.S. economic recovery from about the second half of this year makes “an end to quantitative easing more likely, widening U.S.-Japan yield spreads.”