The Japanese yen is expected to outperform the US dollar and euro in 2024, according to a survey of market analysts. Despite a tough 2023, where the yen performed poorly against other G10 currencies, experts believe that interest rate differentials will narrow, leading to a modest appreciation of the yen in the coming year.
In 2023, Japan was the only country to maintain negative interest rates, putting downward pressure on the yen. It underperformed against the dollar, euro, and other G10 currencies, with the Japanese yen exchange rate trading around 141.40 yen per US dollar at its lowest level since 1990.
The Swiss franc was the strongest performing G10 currency for the second year in a row, followed by the British pound and the euro. However, the yield on the benchmark 10-year US Treasury note briefly exceeded 5% in October, leading to increased interest rate differentials between the US and Japan.
As a result, the market has seen active carry trades in the yen, pushing the dollar higher. Japanese purchasing power has also declined, with the real effective exchange rate of the yen reaching a historic low in August 2023.
Looking ahead to 2024, the Federal Reserve and the European Central Bank are expected to cut interest rates, while the Bank of Japan may end its zero interest rate policy. With interest rate differentials set to narrow, most analysts believe that the yen will appreciate modestly in the coming year.
Bank of Japan Governor Kazuo Ueda is also preparing for Japan’s first interest rate hike since 2007, with a new round of remarks providing reasons for raising interest rates. Despite this, most forecasts show the yen remaining weaker against the dollar before the Fed’s rate hike cycle.
A quick survey of analysts revealed that 59% believe the yen will outperform the dollar and euro in 2024. However, it is expected to strengthen only when speculative traders buy back the yen they sold for carry trades when US interest rates are cut.
Overall, the outlook for the Japanese yen in 2024 is cautiously optimistic, with experts predicting that it will outperform its major counterparts, the US dollar and euro.