Yen to Gain in 2009 as Markets Normalize, Citigroup Says

Dec. 19 (Bloomberg) -- The Japanese yen will continue to strengthen next year as deleveraging by financial institutions decreases risk taking even as markets become more stable, according to Citigroup Inc.

Investors should sell the dollar and buy the yen in 2009 as U.S. monetary and fiscal policies make U.S. assets less attractive, Citigroup strategists led by Jim McCormick, London- based global head of foreign exchange and local-markets strategy, wrote in a research note today.

“We expect persistent yen strength despite some normalization in financial markets,” McCormick wrote. “The Japanese still have significant overseas positions and Japan’s banking system is in healthier shape than Europe’s or the U.S.”

The yen has been the biggest gainer this year, climbing at least 15 percent against all major currencies, as investors sold risky assets to pay back low-cost loans in Japan’s currency. The yen appreciated 25 percent against the dollar this year, the most since 1987.

The dollar fell 4.4 percent against the euro this week as the Federal Reserve cut its target lending rate to a range of zero to 0.25 percent and reiterated plans to purchase agency debt and mortgage-backed securities.

Citigroup also recommended investors sell the ICE Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona. Citigroup said commodity currencies have good relative value and suggested buying the Australian dollar against the New Zealand dollar.