Summary
The USD/JPY has risen sharply since the start of 2024, with the dollar strengthening and the yen weakening across the board. The pair fell to below 141 toward the end of 2023 on expectations that the divergence in monetary policy between Japan and overseas would narrow quickly, but then rebounded to the 148 level over the space of about half a month. A key question in the near term is when a shift in monetary policy will occur in both Japan and the US. We expect the dollar to weaken against the yen over the medium term, but see room for the dollar to strengthen in the short term given the timing of a rate cut by the Fed. Meanwhile, the BOJ will likely look for a shift in its monetary policy in March at the earliest. No consensus has been formed on the timing or measures the BOJ might take, and we expect the yen to be bought back again if the Bank continues to lay the groundwork for a policy shift.
