USD/JPY Plummets: Citi Research Predicts Further Decline in the Pair
The USD/JPY pair has experienced a significant drop over the past four weeks, with Citi Research warning of potential increased selling pressure in the future.
As of 08:55 ET (12:55 GMT), USD/JPY was trading 1.8% higher at ¥146.88, following comments from Bank of Japan officials that downplayed expectations of additional interest rate hikes.
BOJ Deputy Governor Shinichi Uchida emphasized that the bank will refrain from raising interest rates during periods of market instability, in response to recent volatile movements in the Japanese currency.
Despite the recent decline, the yen remains well above 38-year lows, driven by record low interest rates in Japan that have supported the popular yen carry trade strategy.
However, the sustainability of this trade came into question as Japanese authorities intervened to bolster their currency and the Bank of Japan implemented interest rate hikes.
While Japan’s overnight rate stands at 0.25% compared to dollar rates of around 5.5%, carry trades are more influenced by currency fluctuations and rate expectations than the actual rate differentials.
Citi Research analysts noted that the JPY carry trade may face challenges due to changes in supply and demand dynamics, potentially leading to further downside for the USD/JPY pair in the future.
The bank projects the USD/JPY pair to drop below ¥140 in 2025, ¥130 in 2026, and ¥120 in 2027.
Analysis:
The article discusses the recent decline in the USD/JPY pair and the factors influencing this trend. Citi Research predicts further downside for the pair, citing changes in supply and demand dynamics and intervention by Japanese authorities. This could have implications for investors engaged in carry trades and those interested in currency market movements. It is essential for individuals to monitor these developments and consider the potential impact on their investment portfolios and financial decisions.