June 12 (Bloomberg) -- The yen will rise to its strongest since January 2005 in the next six months on prospects the Bank of Japan will boost borrowing costs at a faster pace than the Federal Reserve, according to Deutsche Bank AG.
The yen has gained 3.3 percent against the dollar this year on speculation the BOJ will lift its benchmark rate from near zero percent, while speculation is building the Fed is close to the end of its cycle of rate increases. Japan's central bank cut overnight rates to zero in 2001 to combat deflation.
``The Fed is going to be on hold while the BOJ will continue to hike throughout the year,'' said Jens Nystedt, a currency strategist in New York at Deutsche, in a phone interview on June 9. ``The interest-rate differential going forward is going to favor the yen. I certainly want to be long,'' or buying the yen, he said.
From 113.97 per dollar at 5:27 p.m. in New York on June 9, the yen will rally to 102 per dollar by year-end, Nystedt predicts. It would be the strongest since 101.68 yen on Jan. 17, 2005. The yen reached an eight-month high of 109 yen on May 17.
Frankfurt-based Deutsche is the largest currency trader, according to an annual survey by Euromoney magazine.
Nystedt predicted the BOJ will boost its benchmark rate starting in July by a total of 0.75 percentage point by year-end. The Fed will lift its target a 17th straight time by a quarter- percentage point to 5.25 percent at its June 28-29 meeting and then pause, he said. The U.S. benchmark rate will only exceed Japan's by 4.5 percent by year-end, he said.
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