JPMorgan alerts Japan Inc to brace up for ¥100/USD

JPMorgan Chase & Co has alerted Japan Inc to gear up for the surge in Yen against the US dollar. JPMorgan Chase forecast Yen will reach 100 yen against a US dollar. However, it says the rally in currency may not sabotage the Japan industry.

Forex analysts are upbeat on increase in Japan's currency against the US dollar, which is increasing against other major currencies such as GBP, Euro and Yuan. Japan's currency Yen is expected to gain strength to reach ¥110 per US dollar from the current ¥121.

The surging Yen will impact corporate earnings as well. According to a report by The Japan Times, the world's third largest economy is likely to witness strengthening of Yen in 2016. Tohru Sasaki, a Tokyo-based market research analyst and worked at the Bank of Japan for over a decade, sees the equilibrium exchange rate at below 100 against the US dollar.

The average of 50 forecasts in a survey compiled by Bloomberg, reveals that Yen against US dollar will be 110 in 2016 from the 12 now. "What investors like to hear is that the Yen is weak and stocks are up. But if everyone's constantly betting that way at some point they're going to get burned," said Sasaki.

The Yen against the US dollar was in the range of 122-123 during 20 November-2 December. Japan's central bank governor Haruhiko Kuroda said the further fall in Yen was unlikely. Economists opine that weaker Japanese currency added to the surge in prices of goods, but wages didn't go up.

However, a recent survey by Reuters, indicated further fall in Japan's currency. The survey carried out by Nikkei Research for Reuters. It has showed that majority of Japanese firms were expecting Yen to drop further to 130 against the US dollar. Half of the Japanese firms expect that Yen to fall further to 13-year low.

JPMorgan's forecast for rising Yen is contrary to other predictions, which put Yen at 125 per dollar in 2016. Yen has been declining against the US dollar for past five years taking the total drop to 38 percent.

Japan's Prime Minister Shinzo Abe has been implementing several measures to bring back the growth to its economy. The weaker exchange rate helped the corporates to post profits, while boosting stock prices.
Japan's gross domestic product (GDP) is declining and lagging behind Hong Kong. The Japan's per capita GDP was ranked at 20th position among 34 developed nations in 2014 as reported by Nikkei Asian Review. The per capita GDP in dollar terms fell six percent to $36,230.

Sasaki has also projected a rebound in Japan's current account surplus, which recorded the widest gap in March 2008. The trade surplus of Japan rose to ¥13.3 trillion, a five-fold increase in from ¥2.6 trillion registered in all of 2014.

Forex and stock markets move in different patterns. Sasaki said that equity prices would go up because everyone is working to maximize their returns. But, in the forex market there's up and down always.