Citi provided commentary on the currency pair, comparing it to historical currency movements and forecasting potential future trends. The financial services firm suggested that while the USD/JPY pair’s gains were more circumscribed than initially anticipated, it is unlikely to fall below ¥140/$ by next year.

Citi is predicting a possible rebound to 151-155 yen per dollar before any significant decline.

The firm’s analysis indicates that USD/JPY has preemptively factored in a narrowing of the interest rate differential to around 4%. The next significant decline in the pair is expected to occur once the real interest rate differential between the U.S. and Japan narrows to well below 4%, which it believes could happen in the next six months. Looking further ahead, Citi’s USD/JPY forecasts are below ¥140/$ in 2025, ¥130/$ in 2026, and ¥120/$ in 2027.

Citi also cited the edged decline in the USD/JPY pair during the 1998 LTCM crisis as historical precedent, noting the pair’s significant decline following periods of carry-trade-driven uptrends in the Japanese yen (JPY) in 1998 and 2007. The firm suggests that the USD/JPY pair could face similar risks of a 30%-40% correction within a few years or even months as seen in the past.

The commentary highlighted that USD/JPY has historically risen when the interest rate spread is above 4.75% and has tended to fall when the spread is below that threshold. Citi indicated that the current wide interest rate spread and high carry/volatility ratio could lead to a transient resurgence in JPY carry.

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