Australian Dollar May Rise 17% Versus Yen, St. George Bank Says

By Ron Harui

April 22 (Bloomberg) -- The Australian dollar may rise 17 percent against the yen by the end of this year on signs of “improved risk appetite” and a “sharply weaker” Japanese economy, according to St. George Bank Ltd.

Australia’s currency is also likely to strengthen versus the yen because of a “tapering-off” of Japanese fiscal year- end repatriation flows, Sydney-based economists Besa Deda and Amanda Tan wrote in a research note yesterday. St. George Bank forecasts the Aussie, as the currency is known, will climb to 81.60 yen by December.

“The Australian dollar has benefited from the recent general improvement in risk aversion and appreciated against most currencies as a result,” the economists wrote. “Further, the focus has shifted to the sharp deterioration in Japanese economic fundamentals.”

Australia’s dollar traded at 69.67 yen at 9:55 a.m. in Sydney from 70.24 yen in New York yesterday. The currency touched 73.49 yen on April 14, the highest level since Oct. 14.

The Aussie strengthened 9.4 percent this year against the yen as the VIX volatility index, a barometer of risk aversion, fell from its October high of 89.53 to 37.14 yesterday. The index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes, reached 33.68 on April 17, the lowest since Sept. 26.

“The trends in risk appetites reflect the market view for the global growth outlook,” the economists wrote. “The consensus view is that the global economy could start to recover toward the end of this year or early next year.”

Signs Recession Deepening

The yen also may weaken on increasing signs of a deepening recession in the Japanese economy, according to St. George Bank.

Japan’s overseas shipments slumped 45.6 percent from a year earlier, compared with February’s unprecedented 49.4 percent plunge, the Finance Ministry said today in Tokyo. The government cut its evaluation of business sentiment after the Bank of Japan’s Tankan survey showed this month that confidence at large manufacturers declined to a record low in March.

“Over August 2008 to February 2009, the Japanese trade balance was in the red,” the economists wrote. “Corporate sentiment in Japan touched record lows in the first quarter. These developments have weighed heavily on the yen.”

The Australian dollar will likely appreciate to 71.40 yen by the end of this quarter and to 75.90 yen by the end of September, according to St. George Bank.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net