USD/JPY: Yen Will Strengthen to 140 as Historic Weakness Ends

Amundi SA expects the yen to rally to levels last seen in July 2023 as its historic weakness comes to an end.

Japan’s currency may reach 140 yen per dollar over the next 12 months as the gap between yields in Japan and US narrows, said Shinichiro Arie, chief investment officer at the Japan unit of the largest European asset manager. “We don’t see a weaker yen from here going forward,” he said.

The start of potential rate cuts in the US presents an opportunity to build up long positions in the yen, according to Arie, who said the Bank of Japan may lift rates one more time this year. But it’s best not to pile into large yen positions right away due to volatility in the currency, he said.

Japan’s currency climbed as much as 1.7% versus the greenback to 145.19 on Monday, before trimming the advance. It was little changed at 146.58 as of 6:46 a.m in Tokyo on Tuesday.

Amundi’s call comes as hedge funds turn bullish on Japan’s currency for the first time since 2021 after yen-centered carry trades blew up. First Eagle Investment Management LLC, which expects the BOJ to raise rates again this year, has dropped hedges on the yen on the view rate differentials have peaked. M&G Investment Management remains overweight on the yen.