USD/JPY Could Reach 145 in 1-3 Months, Rabobank Forecasts

USD/JPY Could Reach 145 in the Short Term Amid Japan's FX Talks and Trade Dynamics

Rabobank's FX analyst Jane Foley forecasts that the USD/JPY currency pair could rise to 145 within the next 1-3 months. This prediction comes as Japan's finance minister, Kato, plans to discuss foreign exchange (FX) matters with US Treasury Secretary Bessent, encouraging investors to re-establish long positions in the Japanese Yen (JPY). On a 12-month horizon, Foley also suggests that the USD/JPY could move towards 140, influenced by Japan’s trade talks with the US and concerns about inflation in Japan.

While Japan has significant bargaining power in trade talks with the US due to its substantial foreign direct investment (FDI) in the US, its government will likely be cautious about granting too many concessions, especially considering the upcoming Upper House elections. Furthermore, Japan's first-quarter GDP contraction highlights the economic challenges faced by the Bank of Japan (BoJ). Despite these concerns, the market is only factoring in modest rate hikes in the short term, with weak growth and ongoing trade tensions with the US posing a headwind to Japan's recovery.

This scenario points to potential fluctuations in the Japanese Yen, depending on how Japan navigates its trade relationship with the US and its internal economic challenges.