Economists at the Bank of America expect the USD/JPY pair to remain elevated for the rest of the year before falling in 2024.

Carry factor to weigh against the JPY

“We maintain a bearish view on the Yen against the USD for the remainder of 2023, expecting the carry factor to weigh against the JPY as long as the Fed maintains its hawkish guidance and keeps the federal funds rate at the current level.”

“We anticipate a more substantial Yen rally to take place in 2024, given our prediction that the first Fed rate cut will happen in Q1 2024. Our forecast is for the USD/JPY to rise to 140 by the end of 2023, before falling to 125 by the end of 2024.”

“We warn that our bearish Yen view for this year could be at risk if the Fed cuts rates earlier than expected or if the Bank of Japan enters a proper rate hiking cycle in 2023.”