The yen will outperform the dollar in the first half of this year as risk aversion spurs buying of the Japanese currency, said Tomoko Fujii, a rates and currency strategist at Banc of America Securities-Merrill Lynch Japan. Japan’s currency will rise to 90 per dollar by mid-year, as periods of “sharp gains” are followed by ones of “gradual softening,” Fujii wrote in the first publication of forecasts from the recently merged research divisions of Merrill Lynch and Bank of America Corp. in Tokyo. “The Japanese yen should continue to outperform the U.S. dollar in times of risk aversion,” Fujii said in the note. “Nonetheless, any yen surge, which is typically triggered by an unexpected financial sector event, should remain short-lived.” Japan’s currency traded at 92.63 per dollar as of 10:10 a.m. in London, from 90.64 at the end of last year. The yen gained 23 percent against the greenback in 2008 as global financial turmoil spurred demand for the safety of the Japanese currency. The Japanese authorities are unlikely to intervene in the currency market unless the yen strengthens past 85 per dollar and stocks decline, Fujii said. “With more focus on lower oil import costs and the recognition of huge short-term liabilities to maintain foreign- exchange reserves, hurdles to the Japanese authorities’ intervention should be higher than in the past,” she wrote. Central banks and governments intervene in foreign-exchange markets by buying or selling their own currency to strengthen or weaken it. The yen may decline to 96 per dollar by the end of 2009 as the forces which acted to strengthen the currency begin to weaken, Fujii wrote. “The yen is potentially vulnerable to a sustained recovery in risk appetite,” she said. The currency may fall to 100 yen per dollar in the first quarter of 2010, and 110 by the end of next year, she said.

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