Improving growth prospects in Japan do not necessarily correspond to improving Japanese currency prospects, argue analysts at Wells Fargo. They point out that with inflation still absent, the Bank of Japan is set to maintain an accommodative monetary policy for the foreseeable future. They forecast a USD/JPY exchange rate of 120.00 by early 2023.
“For the time being, a brief period of yen stability is possible, given some recent declines in global bond yields and existing FX positions. IMM currency futures, for example, show speculative yen short positions near their largest levels since 2019, potentially limiting yen softness for now. However, we do expect global bond yields to show a renewed rise in the months and quarters ahead as inflation pressures persist.”
“U.S. price pressures in particular remain quite robust, with the U.S. October CPI rising 6.2% year-over-year. As U.S. inflation remains quite elevated by historical standards and the Federal Reserve winds down its quantitative easing program by mid-2022 and starts its rate hike cycle before then end of next year, we see U.S. 10-year Treasury yields rising to 2.20% by early 2023.”
“With Japanese yields unlikely to follow U.S. yields perceptibly higher, we expect that will translate into a weaker yen versus the U.S. dollar, and target and USD/JPY exchange rate of JPY120.00 by early 2023.”
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