We expect the Bank of Japan (BoJ) to exit negative rates in April, while additional tweaks to YCC should support the Japanese Yen (JPY) into the second half of the year.

BoJ still waiting for wage growth

Although current and former officials have noted there are positive signs of increases in the ongoing wage talks, it still makes sense for the BoJ to wait until the shunto talks are over and wage gains are ‘locked in.’ That would give the ‘virtuous cycle’ of wage-price gains (which the BoJ has been seeking for years) a chance at sustainability. 

We expect USD/JPY has already peaked and should trade back to 147.00 in Q1 before declining towards 144.00 in Q2 (after a ‘dovish’ BoJ rate hike in April – rates will likely be increased but BoJ guidance will still be dovish). Thereafter, we expect Fed cuts and the outlook for gradual BoJ YCC adjustments to push USD/JPY to 140.00 in Q3 and 135.00 in Q4 2024.