USD/JPY will drop to 120 by the end of 2023 — Deutsche Bank

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The fortunes of the yen are reversing. Deutsche Bank economists anticipate that the pair USD/JPY drop to 120 by the end of 2023.

The yen’s comeback has even more travel

“The yen was one of the worst performing currencies in 2021 and 2022, as a dovish BOJ fended off rising global yields and a rebound in energy prices pushed Japan’s trade deficit into negative territory. All of this is changing now.”

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“BOJ policy has already begun to shift and is likely to do so more in 2023 under the new leadership, particularly with the rapidly accelerating pulse of inflation. The balance of payments should improve, with the halving of spot prices for LNG and restarting nuclear reactors to reduce reliance on fossil fuels. There is also room for repatriation flows, given the large USD holdings of Japanese institutions.”

“Forward points are quite depressed given the large gap between Fed and BoJ rates. But down-covering is still worth it and will pay off as long as USD/JPY is below 125 for next year. We see a move towards 120 by the end of 2023.”

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Source: Fx Street

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