USD/JPY: Japanese Yen to strengthen over the year – Scotiabank

USD/JPY traded on Friday at a new high for this year near 149.60. Economists at Scotiabank analyze the pair’s outlook.

JPY trend hinges on yields 

Rising US yields were a clear negative for the JPY during the Fed’s tightening cycle so the reverse should be true as the Fed starts to unwind rate hikes. In addition, the BoJ continues to make small adjustments to its monetary policy stance, allowing bond yields a little more room to rise and teeing up a likely move in its benchmark policy rate (-0.10%) to positive later this year. 

Yield differentials, and therefore the cost of carrying long JPY positions, remain onerous but a short, sharp move lower in USD/JPY is feasible as compressing spreads prompt bearish JPY positions to reduce cover.

USD/JPY – Q1-24 150.00 Q2-24 150.00 Q3-24 140.00 Q4-24 140.00