Japan's top life insurance companies are expecting a range of 135 to 165 yen for the U.S. dollar next year, with only limited potential for the U.S. currency to fall below 140 yen.
The chief foreign exchange traders at each of the five biggest life insurance companies gave their forecasts for the coming year in a survey conducted by Knight-Ridder Financial News this week.Interest rate differentials between the United States and Japan are
shrinking. The Federal Reserve's overnight repurchases of Treasury securities have convinced foreign exchange traders here that it has lowered its target for the Federal funds rate to 8.25 percent from 8.5 percent.
If the Bank of Japan increases its discount rate by 0.5 percent to 4.25 percent, as is widely expected, the gap between U.S. and Japanese short-term interest rates will shrink further to only about 1 percentage point.
An interest rate advantage of 1 point is too slim to continue attracting large amounts of funds from Japanese institutional investors, foreign exchange dealers at some major Tokyo banks said.
But insurance company traders said Japanese institutions will still shift a portion of their funds overseas - to Europe if not to the United States - and this will keep the yen under constant selling pressure on the foreign exchange market, weakening it against the dollar as well as other major currencies.
''Capital flow (overseas) may slow down, but it will never stop," Said Hidemaro Takeshita, the chief trader at Meiji Mutual Life Insurance.
The yen rally that began September 1985 is over, at least for the foreseeable future, Mr. Takeshita said. From a level of more than 240 yen before the Group of Five major industrialized nations agreed in September 1985 to cooperate to bring down the value of the dollar, the U.S. currency fell to a low of barely more than 120 yen at the beginning of 1988. Since then it has traded between 121 and 152 yen.
Mr. Takeshita predicted the dollar would climb to 160 yen by the end of 1990, once the U.S. economy begins to rebound in the second quarter from its ''soft landing."
''I pretty much doubt that Japanese money will come back," even if the Bank of Japan raises its discount rate by 0.5 percent or 0.75 percent, said Toshio Kimura, foreign exchange manager at Sumitomo Life Insurance Co.
Because institutional investors are likely to resume heavy buying of the
dollar after their new business year starts in April, the U.S. currency will strengthen to 160 yen by summer before settling into a range of 140 to 155 yen, Mr. Kimura said.
A widespread idea among institutions is, "you will be safe if you buy
dollars in April," he added.
The dollar was oversold on its way down to 120 yen, so "there has been growing desire (among investors worldwide) to have more dollar assets," said Seiichi Kaneko, foreign exchange manager of Asahi Mutual Life Insurance Co.
With the shift toward detente and liberalization gaining momentum in Eastern Europe, the Far East is lagging behind, said Asahi Mutual Life's Mr. Kaneko.