Analysts' Japanese yen forecasts mostly bullish for 2024

Japanese yen forecasts point to strength vs. dollar in 2024

The Japanese yen remained steady around 142.2 per U.S. dollar as of December 22, mostly in response to subdued market activity after data indicated a continued easing of Japanese inflation in November.

Both headline and core inflation rates in the country dropped to a 16-month low of 2.8% and 2.5%, respectively. The core inflation rate, which doesn’t consider volatile categories like food and fuel, remained above the central bank's 2% target for the 20th consecutive month.

Earlier in the week, the yen faced pressure after the Bank of Japan (BoJ) maintained its ultra-loose monetary policy without signaling potential adjustments toward policy normalization in the coming year.

In a post-meeting press conference, BOJ Governor Kazuo Ueda adopted a more dovish tone than anticipated, emphasizing the central bank's readiness to implement additional easing measures if necessary.

Meanwhile, external factors, including the latest batch of U.S. economic data, has contributed to growing expectations that the Federal Reserve will begin interest rate cuts next year, lending some support to the yen.

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Japanese yen forecast for 2024: ING projects USDJPY at 1.30 by Q3

In their FX Outlook for 2024, released in mid-November, ING’s Global Head of Markets Chris Turner and FX Strategist Francesco Pesole were bearish on the USD/JPY pair. The analysts wrote that Japanese authorities were likely waiting for the Federal Reserve to start cutting rates and for the dollar to decline before starting to normalise the country’s monetary policy:

“So far this year Japanese authorities have chosen not to intervene in FX markets even though USD/JPY has traded over 150. Under similar circumstances last year, the Japanese sold $70bn. While the rhetoric from Tokyo remains acute – meaning intervention could be imminent – we suspect local policymakers are instead waiting for a market-led turn lower in US rates in the dollar. Such a move would of course avoid the need for intervention but also allow the Bank of Japan (BoJ) to exit its super-loose monetary policy next year without Japanese Government Bond (JGB) yields surging”.

The pair also warned to stay wary of geopolitical risks — particularly oil supply shocks — that could affect the Japanese yen in the coming year:

“As a fossil fuel importer, Japan remains a price taker in energy markets and over recent month’s Japan’s current account figures have only just managed to crawl back into positive territory after the 2022 shock. Clearly any escalation of the conflict in the Middle East and higher crude prices would again hit Japan’s terms of trade and weaken the yen. The only difference now is that Japanese consumers are becomingly increasingly dissatisfied with cost-of-living challenges and dissatisfied with the government. This suggests that government may take an even greater interest than usual in the value of the yen. Equally, the government is now looking at some extra fiscal and at the margin could support higher wage rounds in 2024 – a requirement for the BoJ undoing loose monetary policy”.

ING’s Japanese yen forecast for 2024 sees the USD to JPY rate falling to 130 by Q3 2024, and maintaining around that mark until year-end.

USD/JPY in 2024: Citibank HK bullish on yen, sees decline to 135 vs. dollar

Analysts at Citibank’s Wealth Management division in Hong Kong were also bullish on the Japanese yen, although their 12-month projection was slightly higher than ING’s:

“The bottom is likely in Q1. Citi analysts expect USDJPY to peak around 150 over the near term but do not forecast a substantial move lower until next year. USDJPY likely declines to 135 or even below in 2024 if the Fed begins the rate cuts and the US yield adjusts lower consequently. Should crude oil prices drop further it may be another tailwind to promote the JPY recovery”.

Citibank forecast the USD to JPY pair to trade at 149.00 — close to the 150.00 peak observed at the end of 2023 — over the next three months, before dropping to 135.00 on a 6 to 12-month view.

In a Japanese yen forecast for 2024 issued by Danske Bank, analysts projected the same figures as Citibank HK. A note on December 22 read:

“We forecast USD/JPY to steadily decline below 135 on a 12M horizon. This is primarily because we believe that long US yields have reached their peak, although we do not expect a lot of downside from here.

We expect yield differentials to be a tailwind for the JPY over the coming year, as G10 central banks, except the BoJ, are likely to commence rate cutting cycles. In addition, historical data suggests that a global environment characterized by declining growth and inflation tends to favour the JPY”.

At the time of writing on December 22, the USD to JPY currency pair traded around the 142 mark, with the yen sliding by over 8% against the greenback year-to-date. The DXY dollar index — a gauge of the U.S. currency’s strength against a basket of peers — dipped to 101.57. The DXY has declined close to 2% year-to-date after the Fed’s recent dovish signals put downward pressure on the greenback.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.