Synopsis:

BNP Paribas (BNPP) anticipates a substantial medium-term depreciation of USD/JPY to 135 by the end of 2024, predicated on the prospect of the Bank of Japan (BoJ) becoming increasingly hawkish. However, they advise that the current market conditions do not yet favor positioning for this anticipated shift.

Key Insights:

• BoJ's Hawkish Outlook: BNPP expects the BoJ to lead in hawkish policy adjustments by preparing for an interest rate hike in March 2024, which would bolster the JPY.
• Safe Haven Appeal: A global economic deceleration is likely to trigger safe-haven flows into the JPY, contributing to the USD/JPY decline.
• Current Market Dynamics: Despite the long-term outlook, near-term factors such as recent market responses to the BoJ's October meeting, absence of intervention at the 150 level, and sticky US front-end yields suggest potential for further short-term USD/JPY upside.

Conclusion:

BNPP's long-range forecast envisions a significant weakening of USD/JPY, driven by a hawkish pivot from the BoJ and global growth headwinds. Nonetheless, they caution traders that the timing for positioning for such a trend reversal is not yet opportune, highlighting the importance of monitoring yield curve movements and central bank signals for more definitive timing.