USD/JPY to reach 124 by Q4 as the likelihood of a BoJ policy shift should accelerate Yen gains – Wells Fargo

Economists at Wells Fargo believe the Bank of Japan will elect to deliver a policy shift later this year in Q4-2023. Such a policy move should see longer-term Japanese yields spike higher and add to their constructive medium-term outlook for the Yen.

BoJ policy change on the horizon

“We now believe the BoJ will take advantage of a tactical opportunity to further tweak its policy settings in Q4-2023, and we lean towards the October meeting in terms of timing.”

“We expect the Bank of Japan's policy adjustment to be a further step towards normalizing Japan's government bond market. Specifically, we expect the BoJ to lift the target for the 10-year Japanese government bond yield to 0.25% from 0% and widen the tolerance band around that target to +/- 75 bps.”

“While we are already positive on Yen's longer-term prospects, the likelihood of a BoJ policy shift should accelerate yen gains. Thus, against a backdrop of an earlier Bank of Japan adjustment than we previously expected, we also forecast a stronger Yen.”

“We now forecast the USD/JPY exchange rate to reach 124.00 by Q4-2023 and 120.00 by mid-2024, which would equate to a EUR/JPY exchange rate of 140.00 by Q4-2023 and 140.50 by mid-2024.”