Yen to fall to 140 against the US dollar

The yen’s tentative break of 120 against the dollar in the past week has refocused attention on the currency pair after several months of stability. We continue to expect the yen to weaken substantially over the coming years. Admittedly, the Japanese currency already looks “under-valued” on many measures. A resurgence in safe-haven demand could prompt a temporary rebound. But these factors should be more than offset by a marked divergence between the stances of monetary policy in Japan and in the US. Our end-2015 and end-2016 forecasts therefore remain 130 and 140, respectively.