Japanese Yen: Gradual appreciation path after extended weakness – Commerzbank

Commerzbank’s Volkmar Baur notes that the Japanese Yen remains historically weak, with USD/JPY above 162 and EUR/JPY near 186, but still forecasts gradual appreciation over the coming quarters. The bank has revised its projections to a slightly weaker JPY near term, yet expects USD/JPY to fall toward 145 and EUR/JPY toward 175 by end-2027 as fundamentals and rate differentials improve.

Yen seen recovering over coming quarters

"At the beginning of the year, we had assumed that the Japanese yen would likely have already overcome its weakness by this point. For now, however, we acknowledge that there are good reasons for the yen’s weakness to persist for some time. We also continue to see good reasons for a stronger yen over the coming months."

"We are therefore adjusting our forecast slightly upward (weaker yen), but we still expect the yen to appreciate by the end of next year."

"Fundamentally, we remain convinced that economic developments should support a stronger Japanese yen. However, the market does not yet seem convinced of this. We believe, however, that a shift in sentiment could occur in the coming weeks."

"Regardless, we still do not expect the Fed to raise its benchmark interest rate this year, even though the market is currently pricing this in. Next year, our economists also continue to anticipate interest rate cuts by the Fed. Such a development would certainly weigh on the US dollar over the coming months."

"We therefore also expect the JPY to appreciate more strongly against the US dollar than against the euro in the coming months."