Bank of Japan helpless as yen rise continues: UBS, Barclays

The Bank of Japan may be powerless to prevent the yen from rising to a 13-year high, according to the world's biggest foreign-exchange traders.

Deutsche Bank AG, UBS AG and Barclays Plc predict the yen will recover from its steepest weekly decline since 1999 as investors reduce carry trades that fund purchases of higher-yielding assets by borrowing in Japan. The currency will appreciate to 90 per dollar from 97.74 today in Tokyo even if the Bank of Japan intervenes to stem the biggest annual gain since 1998, they said.

"Once the market realizes that we're now in a global recession, there's further deleveraging to come," said Geoff Kendrick, a senior currency strategist in London at UBS, the second-biggest trader in the $3.2 trillion-a-day market. Traders "are capitulating" after five years of bets against the yen, he said in a Nov 4 interview. The currency's 14 percent gain against the dollar this year and 30 percent advance versus the euro prompted Japan's government to announce last month it may buy or sell currencies to influence exchange rates, as the world's second-largest economy stumbled. Gross domestic product shrank by an annualized 3 percent in the second quarter as exports dropped 2.5 percent, according to government data.