Yen May Rise to 85 Versus Dollar, Morgan Stanley’s Feldman Says

Jan. 6 (Bloomberg) -- The yen will strengthen another 10 percent, touching 85 against the U.S. dollar for the first time since 1995, before falling in the second half of the year as the global economy stabilizes, Morgan Stanley’s Robert Feldman said.

Feldman, head of economic research at Morgan Stanley Japan in Tokyo, said in an interview on Bloomberg Radio that the yen may continue to gain. He remains concerned about how quickly the U.S. economy can recover from the worst recession in 25 years.

“I am expecting a little more yen strength, heading toward 85, maybe a touch overshoot over that, over the summer,” Feldman said. “But when that’s done and once the world begins to stabilize in the second half of the year, as I expect it will, then I would expect to see the dollar rebound a little bit vis-a-vis the yen.”

The yen has been the biggest gainer in 2008, climbing at least 16 percent against all major currencies. The yen benefited as investors unwound carry trades, where investors get funds in a country like Japan with low borrowing costs and buy higher- yielding assets, as about $1 trillion in losses and writedowns from the credit crisis reduced investors’ willingness to buy riskier assets.

The yen dropped for a fifth day, declining 1 percent to 94.46 per U.S. dollar at 10:18 a.m. in New York, from 93.44 yesterday. The currency last touched 85 in July 1995. It has slumped 4 percent this year.

Feldman said the yen’s real effective exchange rate is not as strong as current market rates may suggest. The rate, a measure of its value against the currencies of 15 of Japan’s trading partners after adjustment for inflation, rose 5.1 percent in December from a month earlier to the highest level since November 2001, the Bank of Japan said today in Tokyo.

“It’s really important to realize that the current level of yen per dollar, at around 90, is really not a particularly strong yen in real effective terms,” he said. “The level we’re at right now is about average over the last 20 years. So where we are right now is not particularly out of line.”