Yen May Weaken to 110 Per Dollar by Year-End, FX Shonan Says

By Kazumi Miura

March 12 (Bloomberg) -- Japan’s yen may weaken to 110 per dollar in 2009, after recording the biggest monthly drop in 13 years in February, said Masamichi Nomura, director at FX Shonan Investment Group.

The currency depreciated as much as 10.11 yen per greenback in February, the most since August 1995, when Japan bought dollars on the market to weaken the yen. This year’s drop indicates a “dramatic change” in supply and demand, because it happened without intervention and as Japanese companies brought home profits toward the fiscal year’s end, Nomura said.

With the global recession intensifying, “Japanese companies can’t expect overseas subsidiaries, which may be posting losses, to send much profit back home,” Nomura said. Japan also recorded a trade deficit every month since October, leaving companies with less cash to invest abroad, he said.

Japanese authorities stepped into the market to sell 817.4 billion yen ($8.5 billion) in August 1995, according to finance ministry data.

The world’s second-biggest economy posted its first current-account deficit in 13 years in January, while the trade shortfall widened to the most in more than two decades.

More large-scale funds have been set up in Japan this year to invest in foreign bonds, which may also accelerate yen sales, Nomura said.

Nomura Asset Management Co. started the U.S. High Yield Bond Funds in January with 128.7 billion yen in assets, the biggest since 2007.

The yen is also set to weaken further due to Japan’s shrinking economy and rising political turmoil, FX Shonan’s Nomura said.

The economy contracted at the fastest pace since 1974 last quarter, the government said today in Tokyo. Gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, the Cabinet Office said.

To contact the reporter on this story: Kazumi Miura in Tokyo at Kmiura1@bloomberg.net