The yen pulled back on recent gains as Japan’s current-account deficit widened to an all-time record in November. The data provided by the Ministry of Finance show that Japan bought a net ¥1.76 trillion ($17 billion) is US treasuries that have the highest yield premium over Japanese debt (JGBs) in more than two years. The yield differential on the US-to-JGB debt was 2.17 percent.
The current-account widened to ¥592.8 billion in November, the largest monthly drop since 1985 and exceeds analyst expectations of ¥368.9 billion.
The ever-widening current-account is what is preventing the yen from strengthening, according to Daisuke Karakama, economist at Mizuho Bank Ltd. The current-account “is one of the reasons why yen won’t strengthen. The widening yield differential is pushing dollar-yen higher,” said Karakama. The dollar-yen droped to 102.85 before pulling back, currently trading at 103.43.
The current-account may deter the yen over the short-term, but the USDJPY is likely to continue weakening over the next few weeks. Morgan Stanley and Westpac are forecasting a 15-16 percent jump in the yen after the large decline in 2013. The sentiment on the US dollar is also very weak as markets are unsure of both the economy moving forward and whether or not the Fed will continue to taper. “There’s a bigger risk of dollar weakness than that of dollar strength,” said Noriaki Murao, the managing director of a marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd.