Citi Bank has recently shared its latest USD/JPY 2025 forecast, shedding light on the future trajectory of the pair. According to the bank's strategists, the yen's recent depreciation has largely been influenced by Japan’s current account deficit. While this has driven the yen weaker in the short term, Citi suggests that this structural yen weakness is a misconception. In their medium-term forecast, Citi expects the USD/JPY to reach 150 by the end of 2024. However, the long-term outlook appears more optimistic for yen bulls, as the pair is expected to dip below 140 in early 2025 and approach 130 by the end of the year.
Citi highlights several factors that could reverse the yen's weakness. Japanese corporations may repatriate their foreign earnings, which would place upward pressure on the yen. Additionally, the nation’s travel surplus and increasing royalties on intellectual property are gradually improving its current account balance. These factors could provide long-term support for the yen. They could lead to a stronger currency over time.
Citi also disputes the widespread belief that Japan’s digital account deficit signifies long-term structural weakness. The bank's strategists argue that this narrative is based on a retrospective view, largely following the JPY depreciation over the past decade. They believe that market forces will eventually correct this distorted perspective, leading to the unwinding of short yen positions held by various economic players.
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Citi's USD/JPY forecast predicts the pair could hit 150 by late 2024 before dropping below 140 in early 2025, potentially reaching 130.
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