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Barclays Research discusses USD/JPY outlook and now targets the pair at 145, 141, 136, and 131 by Q1, Q2, Q3, and Q4 of next year.
- "In the medium term, we expect USDJPY to reverse its rally back towards 130 in 2023 due to tightening monetary policy divergence and an improving current account.
- First, we expect the Fed to start cutting rates from September 2023 after holding its FF target range at 5.00- 5.25% for six months, leading to tighter policy rate differentials between the US and Japan. Our baseline assumption is for no changes in BoJ policy until 2024, but the risk may be for an earlier move if domestic wage/inflation dynamics improve, global growth holds up, or fears about the limits of FX intervention arise," Barclays notes.
- "Second, the decline in global commodity prices (especially oil and food) and the reopening of Japan's borders to foreign tourism should start reversing the negative terms of trade shock on the current account in 2022. Limited appetite for FX-unhedged investment as well as subdued outward M&A flows from corporates suggest that FX supply-demand will tilt in favor of the JPY in 2023," Barclays adds.
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The view is off to a good start given the USD/JPY response to cooler US CPI data: