While we expect a shift in stance from the BoJ in 2024, this does not mean we have seen the last of JPY weakness. The transition away from accommodative monetary policy will take time and is unlikely to be accomplished in one meeting early in the year. Economic fundamentals in Japan are challenging and still support the case for low interest rates.

Market expectations of a BoJ move often outpace any realistic outcomes. We’ve seen this several times over the year in reaction to communication from Governor Ueda. The brief reaction in the USD/JPY to Yield Curve Control changes in July and October is informative on this front. This dynamic around BoJ meetings will continue to plague the JPY as we enter Q1 2024, so there is still likely to be volatility in JPY crosses next year. Nonetheless, monetary policy normalisation and a weaker USD over 2024 will help the JPY recover to become less undervalued on a fair-value basis.

We see the USD/JPY at 136 by year’s end.