Dollar to Yen (USD / JPY) could correct to 118 in 2023, CIBC believes

Dov Herman

3 years ago

The dollar / yen (USD / JPY) has shot up a spectacular 30% in the past 18 months. According to CIBC analysts, that would be enough, and the following quarters should bring a correction of the pair’s quotations.

Yen in the shadow of the dollar

The Japanese yen remains under pressure from the US dollar, which has pushed the pair back towards the 20-year highs above 136. Part of this is a result of market expectations of the consistently dovish Japanese central bank. After a series of surprises and aggressive actions by central banks in June, the Bank of Japan did not surprise anything and again remained with the current policy assumptions. The message from the bank that it will not hesitate to take additional action, if necessary, sounds a bit grotesque. In addition, Bank of Japan continues to emphasize that it expects short- and long-term interest rates to remain “at present or below”. – The interest rate commitment is noteworthy in conjunction with the statement by BoJ Kuroda CEO, who said that he did not expect any visible changes in the strategy of controlling the yield curve and limiting the yield on 10-year Japanese government bonds to 0.25%. – CIBC analysts noted. – The BoJ still intends to reduce the yields of Japanese government bonds, while leaving open the possibility, however distant, of further easing the policy. Some believe that the lack of action suggests that the BoJ is isolated and lagging behind other central banks around the world. – they added. – As the yield on 10Y JGB bonds will continue to tighten, Japanese and US spreads indicate that USD / JPY will remain high.
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The Bank of Japan directly referred to the weakening of the yen

It is worth noting that there was a rare reference to a currency in a recent BoJ statement. The bank stated that: “It is necessary to pay due attention to developments in the financial and currency markets and their impact on economic activity and prices in Japan.”

USD / JPY exchange rate. Source: tradingview.com – The direct reference to the currency in the BoJ announcement emphasizes that the bank is not completely unmoved by the weakness of the yen. Although the monetary authorities pay attention to the JPY, they do not necessarily signal a lack of tolerance for the weakness of the JPY, but rather try to avoid uncontrolled movements. CIBC analysts noted. The CIBC forecast assumes a strengthening of the Japanese yen, as the level recommended by the investment bank at the end of 2022 is 130, and for December 2023 it is 118.
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