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Home » Online Forex Trading Blog » Dollar To Strengthen Versus Yen In 2014

Dollar To Strengthen Versus Yen In 2014


One year ago, the USD was at 86 yen. In early Monday trading, the dollar was at 104.71 yen. The USD – yen trade has been a volatile ride in 2013 and many analysts expect the dollar to strengthen in 2014 while the yen continues its downward slide.

The yen lost 20 percent or more to all major currencies last year. Meanwhile, the Nikkei posted record gains last year and the country, although still recovering from the devastating earthquakes, has an enviable jobless rate of 3.8 percent.

The weaker yen can be attributed to policies promoted by Prime Minister Shinzo Abe, who returned to office in December 2012 after a five-year hiatus. In its simplest form, the Prime Minister’s economic plan has three major elements.

  • Massive quantitative easing
  • An expansionary fiscal policy
  • A plan for long-term growth

The Bank of Japan launched a $1.4 trillion easing program in April, 213. The yen suffered an immediate 12 percent hit. The yen mounted a rally as bond yields climbed. In November, rumors of tapering by the Federal Reserve strengthened the dollar and the yen was soon reeling.

With more easing expected in 2014 and with the Fed presumably further winding down its bond buying program, many analysts see the dollar hitting 110 yen during 2014.

One of Shinzo Abe’s targets is the country’s inflation rate. For most of 2013, the country’s inflation rate was 0.9 percent. Abe has targeted 2.0 percent inflation by March 2015. In October, the inflation rate was 1.1 percent.

While the Nikkei is up 40 percent and the yen 20 percent weaker, Japanese exporters are poised to capitalize. Today, Toyota announced that the auto manufacturer sold more than 900,000 units in China last year. Japan’s export trade is strong. The yen may be down, but Shinzo has the economy in recovery mode. Foreign investors are now looking into investment possibilities in Japan, an activity that has not had much traction in recent years.

The New Consumption Tax

To pay for the country’s aging population, Shinzo Abe will implement a new consumption tax in 2014. The tax will raise the existing rate from 5 percent to a healthier 8 percent. By 2015, the rate will climb to 10 percent. The tax increase may be met with resistance as has happened in the past.

To offset the tax, the government announced a 5 trillion yen stimulus package, designed to assist low income earners and repair the country’s infrastructure. Shinzo is also promising lower corporate tax rates which will help lure foreign investors and strengthen the country’s business environment.

The Prime Minister has said that the Bank of Japan is ready to increase the stimulus if there are signs of an economic slowdown. All these factors point to a stronger recovery but a weakening of the yen in 2014. At the same time, indications are that the USD will gain strength during the year. Tapering will increase and if Congress can act constructively, instead of destructively, the US should see 4 percent growth in 2014.



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About the Author -

Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

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