MUFG predicts a substantial decrease in the USD/JPY exchange rate over the course of 2024, citing factors including US yield developments, Japan's aggressive inflation policies, and the Bank of Japan's anticipated policy shifts.
- US Yield Developments: US yield trends will play a crucial role in the USD/JPY movement, with falling yields expected in the context of slowing US growth and declining inflation.
- Japan's Inflation Policies: Japan's persistent efforts to lift inflation closer to the BoJ's 2% target, exemplified by the government’s recent JPY 17 trillion stimulus package, could impact the currency pair. This package includes subsidies and tax measures aimed at boosting demand and potentially increasing inflation.
- BoJ Policy Tightening: Expectations of BoJ policy tightening, including the removal of the Negative Interest Rate Policy (NIRP) in January, are anticipated to influence the JPY. The BoJ is expected to communicate growing confidence in achieving price stability and the possibility of further rate hikes beyond the initial 20 basis points.
- Expected Yen Rebound: The combination of global yield declines and the BoJ's policy shift is predicted to contribute to a yen rebound.
- Forecasted USD/JPY Drop: MUFG expects a drop in USD/JPY of more than 10% in 2024.
MUFG's analysis indicates a significant potential drop in USD/JPY in 2024, driven by a combination of factors including US economic trends, Japan's aggressive fiscal and monetary policies to combat inflation, and expected policy shifts by the BoJ. The forecasted decline in USD/JPY reflects the interplay of these domestic and international economic factors and central bank policies.