(Bloomberg) -- Neil Parker has spent nearly three decades tracking the yen, through financial crises and sharp currency swings. Now, the top dollar-yen forecaster in Bloomberg’s latest rankings sees the Japanese currency rallying toward 147 per dollar next year as Japan’s interest-rate gap with the US narrows.
His call puts him at the bullish end of a deeply divided market. While Parker sees the yen strengthening to around 155 by year-end before appreciating further, Bloomberg’s top forecaster in the previous quarter sees it weakening as far as 170 next year.
At the heart of the divergence is Japan’s interest-rate outlook. Parker expects the Bank of Japan to raise its benchmark rate from 1.25% to at least 2%, potentially 2.25%, a more aggressive outlook for tightening than much of the market expects. The Federal Reserve, meanwhile, may raise interest rates once more in December before stopping at around the 4.00-4.25% range, according to Parker.
“Japan may prove to be an outlier in terms of the Bank of Japan actually delivering on its promise to bring interest rates into line with where inflation is,” said Parker, head of economics and market strategy at foreign-exchange and payments firm TTT Moneycorp Limited.
Japanese market participants are divided over whether stronger inflation prompts faster tightening by the central bank. Japan’s consumer price index excluding fresh food and energy, a metric closely monitored by the BOJ as a gauge of underlying inflation, advanced 2.4% in September. Parker said that a pickup to 2.6% or higher could prompt a stronger central bank response and speed the path for tightening. He also isn’t convinced the central bank will move as soon as December.