Selling USDJPY

The USDJPY growth period is likely to end in 2024.

This is the view of market participants surveyed by Bloomberg, who expect the yen to rise next year as the Bank of Japan exits the negative interest rate regime.

A year ago, traders speculated that the new BOJ governor could roll back ultra-easy monetary policy as early as that time. Now they agree with economists who say the shift will happen within a few months, and the central bank's leadership has publicly discussed the implications of future changes.

“The situation won’t disappoint the yen bulls on this occasion,” said Shoki Omori, a strategist at Mizuho Securities Co. in Tokyo, who sees the prolonged slump in the currency coming to an end. “There’s not a lot of room for the BOJ to tighten policy, but they do seem determined to rip up negative interest rates.”

The average of forecasts compiled by Bloomberg indicates the yen will strengthen to 135 against the dollar by the end of 2024.

According to Commodity Futures Trading Commission data for Dec. 12, asset managers have trimmed their bearish bets against the yen in recent months as sentiment began to gradually shift. 

Below is more commentary from investors and strategists on the yen for the year ahead.

“We believe that there is sufficient longer-term structural improvement in the economy,” said Steven Barrow, the London-based head of G-10 strategy at Standard Bank, which has a one-year forecast of 125 for the yen.

Barrow sees the currency appreciating over the longer term regardless of whether rate differentials narrow. He cited positive change in Japan including the end of deflation and the stock market rally. The benchmark Topix equity gauge has soared about 23% so far this year.

Yujiro Goto, head of Japan FX strategy at Nomura Securities Co.: 

“The Fed and the ECB may start delivering rate cuts around June, supporting the appreciation path for the yen. The US economy falling into recession would boost the chance of dollar-yen moving toward the 130-135 area, while a soft-landing scenario may limit the pair’s decline to around 140.”

Takeshi Yokouchi, senior portfolio manager at Sumitomo Mitsui DS Asset Management Co.:

“Dollar-yen is sure to face downward pressure if the major central banks start cutting rates and the BOJ shifts policy away from the negative interest rate. However, the decline is likely to be somewhat limited, unlike the yen’s rise to 100 per dollar seen in the past because the economic recovery in Japan does not seem to have the same strength.”

Hiroyuki Machida, director of Japan FX and commodities sales at Australia & New Zealand Banking Group:

“The dollar will probably weaken due to lower US yields. Even if the BOJ won’t tighten policy amid uncertainties caused by rate cuts in the US, the yen can rise solely because of the direction of US monetary policy.”

Kenta Tadaide, chief FX strategist at Daiwa Securities Co.:

“The Fed will probably start cutting borrowing costs around the summer of 2024 when the economy goes into recession, pushing dollar-yen below 130.”

The overall recommendation is to sell USDJPY. Profit should be fixed at the level of 125. Loss should be fixed at the level of 155.