RBC Capital Markets has revised its USD/JPY forecast, extending its bullish outlook for the pair into 2024 with a peak at 154. The bank cites the reemergence of carry trades in G10 currencies and doubts the consensus view predicting JPY gains.

Key Points:

• Skepticism About Bullish JPY Consensus: RBC is skeptical about the widespread bullish outlook for the Japanese yen. The bank highlights that the reemergence of carry trades in the G10 currency space makes it difficult to join the bullish-JPY consensus.

• Carry Trade Impact: The bank notes that when G10 interest rates were last as dispersed as they are now, the yen carry trade was a dominant market strategy. While they don't see a full return to that environment, they do see it as a factor that could undermine JPY strength.

• Intervention Risk: RBC acknowledges a near-term risk of currency intervention by the Japanese Ministry of Finance, estimating a 20% probability. While this could temporarily cap USD/JPY levels, it is not expected to alter the longer-term upward trend.

• Revised Forecast: RBC retains its end-of-year USD/JPY forecast at 150 but has extended the rally into the first half of 2024, with a new cycle peak at 154.

Conclusion:

RBC maintains a bullish outlook on USD/JPY, doubting the general consensus for a stronger yen. The bank cites the resurgence of carry trades in G10 currencies and the history of JPY as a funding currency as factors supporting their view. While acknowledging a near-term risk of intervention, they remain optimistic that USD/JPY will hit 154 in the first half of 2024.