Category: Forex News

End-2024 USD/JPY Forecast Revised To 145 On Japanese Capital Outflows

Foreign currency analysts at HSBC have shifted their US Dollar to Yen (USD/JPY) exchange rate forecast and now expects losses will be held to 145 at the end of 2024 compared with the previous forecast of 136.

HSBC expects higher US yields and Japanese capital outflows will curb and yen rebound.

USD/JPY has edged higher and is currently trading close to 34-year highs just below the 152.0 level.

Yield trends will remain important for dollar moves and HSBC notes that at the end of 2023 markets were pricing in six Fed rate cuts for 2024. This pricing has continued to shrink with markets now pricing in just under three cuts.

This shift in expectations will underpin the dollar, especially with US yields moving higher.

HSBC also notes that there have been substantial capital outflows from Japan while overseas companies have continued to issue yen-denominated bonds.

The bank notes that Japanese investment trusts bought $21bn in overseas equities in the first quarter of 2024, three times the normal pattern.

These capital flows will continue to undermine the Japanese currency in the short term.

Although it considers USD/JPY is theoretically overvalued, it considers that current levels are within justifiable ranges given overall fundamentals.

foreign exchange rates

Key Quotes:
“Market pricing for rate cuts by the Fed in 2024 has shrunk from 140bp in December 2023 to just c65bp.”

“Short JPY speculative positions have gone to the largest levels since mid-2007.”

“Investment trusts bought USD21bn of foreign equities in January-March, close to three times of their normal buying patterns.”

“USD-JPY remains overvalued based on rate differentials.”

“Considering… the broad USD’s strength, robust risk appetite and strong JPY-funded carry trades, USD-JPY seems inside its range of modelled outcomes.”

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