We believe the latest bout of dollar weakness is a sign of things to come, and we see the USD/JPY pairing falling to around 124 by next June.

The same set of conditions that caused the Yen to appreciate in late 2022 are in place again. Even though we cannot rule out near-term spikes in the pairing above 145 so long as the Fed remains hawkish and the BoJ stays dovish, we believe any further Dollar strength would be short-lived. As in late 2022, we expect a moderation in US economic data and an adjustment in BoJ's yield-curve control policy. We also see stretched net short JPY positioning in the market – which could accelerate any move higher in the Japanese currency.