The U.S. Dollar held close to a 5-year peak against the Yen during Asian trade and is poised to record the largest annual percentile gain against it in more than three decades, with the U.S. Dollar exploding by 20.9% this year. The last time the greenback made any giant strides against the Yen was in 1979 when it gained 23.7% against the Japanese currency. For the most part, the divergence in monetary policy outlook between the two central banks has been the impetus for the greenback’s performance relative to the Yen, and analysts believe that a continuation of that outlook is likely to set the stage for an interesting 2014 which will result in more losses for the Japanese Yen and additional gains for the greenback.
As reported at 11:39 a.m. (JST) in Tokyo, the USD/JPY pair was trading at 104.93 Yen, edging off yesterday’s 5-year peak of 105.41 Yen, a level last seen in October 2008. Some currency strategists believe that the U.S. Dollar could move as high as 110 Yen during the first six months of 2014, with a possible sizeable correction at that point once the proposed increase in the country’s sales tax takes place in April.
Global Outlook Undermines Yen
An improvement in investors’ sentiment regarding the overall global outlook has tended to improve risk appetite, which also forced the Yen’s retreat especially as Japanese investors will seek to place the funds abroad for better return, which results in pressure on the Japanese currency. Given the improved outlook, that factor has resulted in the Yen experiencing broad declines against most of the major currencies.