The Dollar to Yen (USD/JPY) exchange rate traded at 157.07, holding below recent highs after failing to sustain gains above the 160 level amid intervention risks and shifting policy expectations.
Rabobank notes that the Japanese Yen remains one of the weakest G10 performers this year, with the currency still widely used as a funding currency for carry trades.
“The JPY has remained a poor performer in the year to date, with the JPY struggling to throw off its funding currency reputation.”
The bank highlights that while intervention may slow moves, it is unlikely to reverse the broader trend unless supported by fundamentals, suggesting any pullbacks could attract renewed buying interest.
Rabobank expects the outlook to gradually shift in favour of the yen, supported by structural changes in Japan’s economy, a more hawkish Bank of Japan and expectations for Federal Reserve rate cuts later this year.
Rabobank forecasts the Dollar to Yen exchange rate (USD/JPY) will fall to 158 over the next 3 months and to 145 over a 12-month horizon, assuming further BoJ tightening and a more accommodative Fed policy stance.
The bank adds that geopolitical risks, particularly the energy shock linked to the Strait of Hormuz, may delay yen recovery in the near term but should not derail the broader trend.
“On the assumption that the timeframe for the gradual re-opening of the Strait of Hormuz will be in the weeks ahead, rather than in several months’ time, we are sticking with our forecast of USD/JPY ending the year at lower levels.”
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