Investing.com — Citi has updated its forecast for the , providing insight into the pair’s trajectory for both the medium and long term.
The bank’s strategists emphasize that the yen’s recent depreciation is largely driven by a retrospective story related to Japan’s digital account deficit. However, they suggest that this narrative about the yen’s structural weakness is a “misconception,” with the currency’s current status being more nuanced.
In its basic medium-term forecast, Citi suggests that the yen could weaken, potentially pushing USD/JPY towards 150 by the end of 2024.
Looking further ahead, however, strategists warn that the pair could dip below 140 in early 2025 and continue its downward path to close around 130 late next year.
In explaining this forecast, Citi points out that several factors could reverse the yen’s recent weakness.
One of these is the potential repatriation of foreign earnings by Japanese companies, 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 support the currency’s strength over time.
Citi also challenges the prevailing view that Japan’s digital account deficit reflects a long-term structural weakness.
“In our view, this is essentially a trend-following argument that seeks a retrospective narrative of the JPY depreciation that has continued over the past decade,” Citi strategists noted.
“It is based on a distorted narrative about the actual image of Japan’s BoP, and correcting this distortion may take several years. During this period, short positions in JPY held by a range of economic entities will persist, and there should be stable market forces working to overturn these positions.”
Still, Citi remains cautious about the short-term outlook for the yen. The bank recognizes that key factors such as portfolio investments and the broader financial balance will continue to influence USD/JPY movements.
They also warn that the pair remains sensitive to marginal changes in market conditions and flows.
