Yen strengthens amid doubts about 'Abenomics', upwardly revised growth
Japan's prime minister, Shinzo Abe, is losing the confidence of the currency market, where traders are repudiating his efforts to end persistent deflation and revive the world's third-largest economy.
Instead of continuing to push the yen lower in response to Abe's economic programmes and the Bank of Japan's money-printing policies, traders have made it the best-performing major currency over the past month.
Options trading shows there is about an even chance it will strengthen to 90 per US dollar by the end of the year, from 95 last week and 103.74 on May 22, the weakest level in almost five years.
This is happening after data showed Japan's economy grew more strongly in the first quarter than first thought. A rising yen, which makes exports less competitive, bodes ill for Abe and Bank of Japan governor Haruhiko Kuroda as they team up to spur inflation and growth.
While the yen has weakened from about 77 per dollar in September, its new strength signals that the decline was overdone given that Abe's plans to enact programmes including deregulation of the health industry will not start for months.
"We've been very sceptical of the rapid weakening in the yen," said Robert Rennie, currency strategist at Westpac Banking, Australia's second-largest lender.
"What Abenomics has done is it's changed expectations, I'm just not sure how quickly it can change reality."
The yen climbed about 3 per cent last week. It is up 4.2 per cent over the past month.
The prime minister said on June 5 his growth strategy would not begin until later this year, meaning he is putting off any political fights over the plan until after next month's election for the upper house of parliament.
Yesterday's data showed Japan's economy grew at an annualised rate of 4.1 per cent in the first quarter, up from a preliminary reading of 3.5 per cent.