Investing.com – Citi has updated its forecast for , providing insight into the pair’s trajectory in both the medium and long term.
The bank’s strategists emphasize that the recent yen depreciation is largely due to a retrospective narrative linked to Japan’s digital account deficit. However, they suggest that this narrative about the yen’s structural weakness is a “mistake” because the currency’s current status is more mixed.
In its medium-term baseline forecast, Citi suggests that the yen may weaken, potentially pushing USD/JPY towards 150 by the end of 2024.
But looking further ahead, strategists warn that the pair could fall below 140 in early 2025, continuing its downward trend and closing near 130 by the end of next year.
In explaining this forecast, Citi points out that various factors could reverse the yen’s recent weakness.
These include the potential repatriation of overseas profits by Japanese corporations, which could put upward pressure on the yen. Moreover, the travel surplus and rising intellectual property royalties are improving Japan’s current account balance, which could further strengthen the currency over time.
Citi also disputes the common view that Japan’s digital account deficit reflects long-term structural weakness.
“In our view, this is essentially a trend-based argument designed to provide a retrospective narrative on the depreciation of the Japanese yen that has continued over the last ten years,” Citi strategists noted.
“It is based on a distorted history of Japan’s actual balance of payments picture, and this distortion may take several years to correct. During this period, short Japanese yen positions held by a number of traders will remain and there should be persistent market forces working to undo these positions.”
However, Citi remains cautious about the yen’s near-term prospects. The Bank acknowledges that essential factors such as portfolio investments and broader financial balance will continue to influence USD/JPY exchange rate fluctuations.
They also warn that the pair remains sensitive to marginal changes in market conditions and flows.
