Bloomberg News

Dollar May Slump to 60 Yen on Historical Patterns, Mizuho Says

September 28, 2011

Sept. 29 (Bloomberg) -- The dollar may slump to 60 yen after falling to a postwar low versus the Japanese currency last month, based on trading patterns over the past 40 years, Mizuho Corporate Bank Ltd. said.

The U.S. currency has bottomed out about 30 percent below its previous low on four occasions since 1971 and is poised for a fifth plunge, said Hiroyuki Tanaka, chief technical analyst at the unit of Japan’s third-largest listed bank. The dollar fell by 100, 80, 60 and 40 yen in the past four declines, with the size of the drop shrinking by 20 yen each time, he said.

“The dollar’s four historical nadirs since 1971 are connected by a certain pace of decline,” Tanaka said. “This time, the dollar may slide by about 20 yen from the previous bottom of 79.75 yen.”

The dollar was 360 yen until U.S. President Richard Nixon ended the gold standard in August 1971. The currency has bottomed four times since then, at 254.45 yen in March 1973, 177.05 yen in October 1978, 121.25 yen in December 1987 and 79.75 yen in April 1995. The greenback reached a post World War II low of 75.95 yen on Aug. 19, even after Japan intervened in the currency market to sell yen and its central bank expanded monetary stimulus on Aug. 4.

Dollar-yen exchange rates are mostly driven by the dollar rather than the yen, Tanaka said. As Treasury 10-year yields, which determine the flow of long-term investment, reach a low every five years, the greenback may weaken to about 60 yen in 2013, he said.

50 Percent Drop

The dollar has also fallen by at least 50 percent from peak levels three times in the past 40 years and it’s “highly likely” that the U.S. currency is headed for a fall of similar magnitude, Tanaka said.

The greenback slid from 360 yen to 177.05 yen in October 1978, from 277.65 in November 1982 to 121.25 in December 1987, and from 160.20 in April 1990 to 79.75 in April 1995, according to data compiled by Bloomberg.

Its peak following the 1995 low was 147.66 yen in August 1998. The currency was as high as 124.14 yen in June 2007, before the onset of the global financial crisis that followed the collapse of Lehman Brothers Holdings Inc. in 2008.

The dollar has fallen 11 percent from this year’s high of 85.53 yen in April amid a worsening European debt crisis and as Standard & Poor’s Rating Services downgraded the U.S.’s credit rating for the first time ever following a protracted debate over raising the country’s debt ceiling.

The dollar will trade at 77 yen by year-end and rise to 82 yen about a year from now, according to the median estimates of analysts in a Bloomberg survey. The currency traded at 76.50 yen at 10 a.m. in Tokyo.

--With translation by Ritsuko Kameyama in Tokyo. Editors: Benjamin Purvis, Naoto Hosoda

To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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