Citi expects the Japanese yen to strengthen against the U.S. dollar over the remainder of the year, forecasting that USDJPY will retreat to below ¥155 despite currently trading near levels the bank considers fair.
The firm’s valuation framework, based on market data from 2017 through 2025, suggests a fair value of roughly ¥161 per dollar. A second model using a shorter timeframe from 2023 through 2025 produces a slightly lower estimate of around ¥159.
Market Forces Are Largely Balanced
According to Citi, the dollar-yen exchange rate does not currently appear significantly overvalued or undervalued.
The bank noted that the support provided to the yen by a narrowing interest-rate gap has been offset by weakness stemming from the strong performance of Japanese equities, leaving the currency pair close to equilibrium.
This balance of factors has helped keep USDJPY near the bank’s estimated fair-value range.
Correction Expected Despite Risk-On Sentiment
While Citi acknowledges that positive investor sentiment could continue to create short-term pressure on the yen, it believes the scope for further dollar gains is limited.
The firm places a longer-term ceiling for USDJPY near ¥160 and expects the exchange rate to correct lower during the second half of the year.
Its forecast calls for the pair to fall below ¥155 by year-end.
Currency Intervention May Remain Important
Citi also argued that policy normalization by the Bank of Japan may not be enough to counter periods of yen weakness if global investors continue favouring risk assets.
As a result, the bank believes intervention by Japanese authorities through yen purchases remains an important tool for maintaining currency stability.
Despite the competing forces affecting the market, Citi’s analysis indicates that the current exchange rate broadly reflects underlying fundamentals and remains close to fair value.
