Nordea expects USD/JPY to remain high as wide US–Japan yield differentials persist and the Bank of Japan stays very accommodative. While some gradual BoJ normalization is anticipated, it is seen as too modest to materially weaken the Japanese Yen near term. Nordea highlights intervention risk if USD/JPY rises excessively but does not base its forecast on it.

Wide rate gap underpins Japanese Yen weakness

"We expect USD/JPY to stay elevated as long as the Fed maintains its hawkish stance and US yields remain well above Japanese yields, while the BoJ only normalises policy very gradually."

"Even if the BoJ were to tweak its yield curve control framework further, we doubt that such steps would be sufficient on their own to trigger a sustained and significant strengthening of the JPY against the USD in the near term."

"Japanese authorities may step up verbal or even actual FX intervention if USD/JPY were to rise too quickly or move significantly above recent highs, but we do not base our central forecast on repeated large-scale interventions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)