Weaker yen gives mixed forecast on local stock market

Major foreign investment banks anticipate the Japanese currency will trade lower against the U.S. dollar in 2013, a report showed Tuesday, while local analysts are mixed about the impact of a weaker yen on the local stock market.

Thirteen global investment banks expect the yen will change hands at 81.62 yen against the U.S. dollar in the first quarter of next year, down 1.8 percent from 80.16 yen suggested a month earlier, according to the report by the Korea Center for International Finance.

The investment banks surveyed Monday also lowered their second- and third-quarter outlook by 2.1 percent and 1.8 percent to 82.15 yen and 82.3 yen, respectively, adding the yen will maintain its downward trend in 2013.

Morgan Stanley forecast that the Japanese currency may trade against the U.S. dollar at 90 yen by the fourth quarter of 2013, while Credit Suisse also lowered its first-quarter outlook by 9 percent to 84 yen, the report showed.

The amendment came as Japan’s incoming Prime Minister Shinzo Abe is set to return to power after clinching a landslide victory on Sunday. Abe is expected to bolster quantitative easing to tackle the stronger yen.

Abe’s Liberal Democratic Party earlier pledged to achieve an annual inflation rate of 2 percent, far outpacing 1 percent suggested by the Bank of Japan.

Meanwhile, South Korean analysts gave mixed outlooks on the impact of Japan’s aggressive quantitative easing on the local stock market.

“A weaker yen will have an adverse impact on the local stock market, as it will worsen the performances of local exporters amid the economic slowdown,” said Lim Noh-joong, an analyst at I’M Investment & Securities Co.

A relatively stronger won inflicts foreign exchange losses on exporters, making South Korean goods such as automobiles more expensive overseas, which damages local firms’ export earnings.

On the other hand, Park Sang-hyun, an economist at Hi Investment & Securities Co., said the rising won against the Japanese currency may bring in more capital to the local stock market.

“A falling yen could spark the yen carry-trade, which will come as a positive factor to the local bourse and the raw material market,” Park said.

Yen carry-trade refers to the practice of borrowing low-yielding yen to invest in higher-yielding assets in other countries. (Yonhap News)