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When will changes come? USD/JPY forecast

Commentaries & Views

You’ve probably come across various analytical texts dedicated to the Japanese yen many times this year. Experts are explaining why this currency has been decreasing, starting at a level of 130 yen for a dollar, then moving to 135, 140. Now, the USD/JPY rate is hovering around 146. Let’s try to find an answer to whether this figure is far from the maximum and when we can expect the yen's resurgence.

The Japanese yen has been cheap only three times in the last 30 years – nowadays, the previous year, and back in the 90s. You can see all these peaks in the USD/JPY pair in the chart below.

While history is significant and may provide us with lots of valuable notes and patterns, it’s a moment to come back to the present. The following chart illustrates the USD's performance against the JPY since the beginning of this year.

We would like to say that it’s time for changes, but to be honest, it doesn’t look like that, at least not in the second half of this year.

The USD continues to appreciate against the yen because of the differences in the central banks’ policies. The Federal Reserve has raised the interest rate much faster and more aggressively than other major regulators, transforming the USD into a safe-haven destination for investors. 

Meanwhile, the Bank of Japan is a unicorn in the financial world, maintaining its negative interest rate despite the yen's weakening.

The future course of events depends on two key factors, both related to central banks, yep. Experts don’t expect any significant changes in the next six months, but after that, different scenarios are possible, potentially favoring the Japanese currency.

The first pivotal moment is when the Fed starts decreasing the interest rate. Market participants anticipate this to happen in the first half of 2024, signaling a retreat for the USD.

The second crucial aspect is whether the BoJ will change its approach. Japanese officials hint that anything is possible by the end of 2023, although the probability remains uncertain.

Given the economic environment, it shouldn't be surprising if the USD/JPY rate reaches 150 or even 155 by the end of the year. At the same time, the yen is undervalued and could potentially move even further from its fair price. That’s why many specialists believe that next year will witness a shift in the balance of power following central banks’ actions.

To identify trading opportunities with the USD/JPY, it's advisable to stay informed about market news and do your analysis. The Forex landscape can change rapidly, that’s why we highly recommend making trade decisions only after conducting your own research.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.