Synopsis:

ANZ expects the JPY to outperform G10 currencies in 2025, driven by BoJ policy normalization, weaker global growth, and higher risk aversion. While USD/JPY may decline toward 150, greater JPY gains are expected against EUR and CHF, making short EUR/JPY and short CHF/JPY preferred trades.

Key Points:

1. JPY Strength Driven by Macro Trends

   • Despite broad USD strength, USD/JPY has not reached new highs, signaling a shift in market dynamics.
   • Elevated FX volatility is discouraging carry trades, reducing speculative long USD/JPY positions compared to 2022-24.
   • Weaker global growth and tariff risks increase demand for safe-haven assets like JPY.

2. BoJ Policy Normalization Supports JPY

   • Growing services inflation and rising wages are pushing the BoJ toward further rate hikes.
   • Japan’s 2024 GDP data shows stronger consumption, reinforcing the case for higher domestic rates.
   • BoJ expected to reach a 1% terminal rate by end-2025, which, while still below US rates, reduces the appeal of short JPY positions.

3. Short EUR/JPY and Short CHF/JPY Trades Favored

   • JPY gains will be more pronounced against EUR and CHF than against USD.
   • Weaker European growth outlook and dovish ECB policy stance make EUR vulnerable against JPY.
   • CHF depreciation amid SNB easing increases downside risk for CHF/JPY.

Conclusion:

ANZ maintains a bullish JPY outlook, favoring short EUR/JPY and CHF/JPY as BoJ tightening, weaker global growth, and reduced carry appeal drive yen outperformance in 2025.