JPY fortunes are reversing. Economists at Deutsche Bank see USD/JPY moving down to 120 by end-2023.

The Yen comeback has further to go

“The JPY was one of the worst FX performers in 2021 and 2022, as a dovish BoJ skirted the rise in global yields, and the energy price spike took Japan’s trade deficit deep into negative territory. This is all changing now.”

“BoJ policy has already started to shift and more is likely in 2023 under new leadership, particularly with the inflation pulse quickly accelerating. The balance of payments should improve, with spot LNG prices halving, and nuclear reactors restarting to cut reliance on fossil fuels. There is also scope for repatriation flows given Japanese institutions’ large USD cash holdings.”

“Forward points are quite depressed, given the large gap between Fed and BoJ rates. But downside hedges still look worthwhile and will pay off as long as USD/JPY goes below 125 over the next year. We see a move to 120 by end-2023.”