For the rest of this year, the biggest driver of the JPY is likely the developments in global yields, especially US yields, and energy prices, to a lesser extent. We deem that US yields are at (or close to their peak), which is the main argument for our bearish USD/JPY stance. 

Furthermore, in the current global economic environment where both growth and inflation are declining, history suggests that it is favourable conditions for the JPY. Hence, we forecast USD/JPY to be around 130 in a 6/12-month horizon.

If the US enters a recession within the next couple of quarters, prompting the Fed to start a rate-cutting cycle, we find it unlikely that the BoJ will start normalizing monetary policy as long as the Fed is cutting rates. In such a scenario, the BoJ will keep policy unchanged until at least H2 2024 when the Fed is done cutting rates. That scenario will likely add support to the JPY on the back of narrowing rate differentials.