Currencies: Surprising yen has room to rise against the dollar

LONDON The yen, up 2.9 percent against the dollar since the start of the year, could more than double its gains this month, if history is any guide. August has been the best month to buy the yen since 1991, according to data from Merrill Lynch. The yen has gained an average of 3 percent during the month over the past eight years. It typically advances against the dollar as Japanese investors, the largest international holders of Treasury securities, receive interest payments from the U.S. government. Analysts say they are surprised that the yen has not gained more this year because Japan is having its longest economic expansion since the 1960s and the Bank of Japan raised interest rates for the first time since 2000. The euro, pound and Swiss franc are all up more than 7 percent against the U.S. currency. "We like the Japanese yen because we think it's undervalued and it will be supported by the BOJ continuing to raise rates," Jason Daw, a currency strategist in New York at Merrill, said. The dollar fell last week to ¥114.397. The U.S. currency is expected to weaken to ¥105, the lowest since May 2005, by the end of the year, Merrill has said. The median estimate in a survey of 44 analysts by Bloomberg News last month was for a drop to ¥108 by Dec. 31. Currency strategists were bullish last year, too, and predicted the dollar would slide to ¥98. Instead, the yen fell 13 percent. "The yen has been the analysts' graveyard," Ryan Shea, a strategist in London at State Street Global Markets, said. Some investors dismissed the idea of betting on a seasonal lift for the yen in August. "If you toss a coin, you can get eight heads in a row," Dale Thomas, head of currencies in London at Insight Investment Management, said. "The yen will remain a weak currency" until several Bank of Japan rate increases make domestic bond yields more attractive. The central bank lifted rates to 0.25 percent on July 14. It could raise them again this year if the economy keeps growing steadily, Atsushi Mizuno, a policy board member, said last week. Japanese investors will have more dollars to spend this month. They received an average of ¥683.8 billion in interest income from overseas debt during the past eight years in August, 25 percent more than in other months, Bank of Japan data show. More than half the payments come from the United States, where the Treasury will pay an estimated $20.7 billion in interest on Aug. 15. Japanese investors, including the Ministry of Finance, had $637.9 billion, or 15 percent, of Treasury securities outstanding as of May, up from an 8 percent share in 1998.