Analysts Divided On Yen Outlook After Month-Long Slide

-- Deflation, oil worries send dollar to 9-month high against yen
-- But analysts split over whether trend can be sustained


LONDON (Dow Jones)--The dollar rose Friday to a new nine-month high against the yen but analysts are split over whether this marks a new trend or is a bubble about to be pricked, even if efforts are stepped up to stimulate the flagging Japanese economy.

Having broken out of a tight and protracted range against the yen at the start of February, the dollar has since added more than five cents, hitting a high of Y81.71.

Reinforcing that trend was data Friday which showed deflation still stalking Japan. That prompted the Bank of Japan to reiterate its determination to boost growth and push up prices, having already wrong-footed markets last month by announcing an extra dollop of asset purchases, a form of quantitative easing.

An overnight rise in global oil prices to their highest level in almost four years also underlined the scale of the task facing the Japanese authorities, due to Japan's massive dependence on imported fuel.

For some analysts that means the dollar is likely to make more headway against the yen, especially if the U.S. economic recovery gathers pace.

"Apart from the short term spur for [Japanese] oil importers to accelerate their dollar... purchases, rising crude prices will likely magnify market concerns about a further erosion of the trade and current account balances of Japan, which must rely even more heavily on imported energy," strategists at UBS said in a Friday note to clients.

UBS last week changed its three-month dollar forecast against the yen to Y85 from Y80.

Bank of America Merrill Lynch this week also upped its forecast but only sees a move to Y79 by the end of the first quarter from Y74 previously, based on the belief that yen weakness has probably now peaked.

Others are similarly unconvinced.

Don't believe the hype though, said Bilal Hafeez, a currency strategist at Deutsche Bank, who puts the recent dollar rally against the yen down to bets being unwound rather than any concerted effort by investors to diversifying away from the yen.

"With the recent rally in the dollar against the yen, many are now calling for a major turning point in it higher. We are not in that camp. Indeed, we believe the current rally in the dollar against the yen is almost over, and so our bias therefore would be to look for the right levels to sell, rather than to buy," Hafeez said, targeting a move to Y75 over the next six months.