USD/JPY Price Forecast for 2024: Key Influences and Predictions

In 2023, the USD/JPY currency pair saw a significant 19% increase in value, influenced by a confluence of economic indicators, central bank decisions, and global events.

Starting the year at 136 in March and closing around 142, the pair navigated through challenges including divergent economic policies, heightened inflation rates, and a persistent global conflict.

This report aims to unravel the key trends and incidents that shaped the pair’s journey throughout 2023. It will delve into the economic repercussions, central bank strategies, and other external factors to forecast their potential impact on the currency pair’s trajectory in 2024.

2023 Market Analysis

In 2023, the Federal Reserve’s interest rate hikes to curb inflation in the U.S. led to a stronger dollar against the Japanese Yen, with USD/JPY peaking at 136 in February.

Compounding this was the geopolitical fallout from Russia’s ongoing conflict in Ukraine, which began in February 2022. The situation escalated in 2023 when Russian President Vladimir Putin signed a bill to suspend the last nuclear arms treaty with the U.S.

Putin’s action, amid heightened tensions over Ukraine, further spurred investors towards safe-haven currencies like the Yen. This shift in investor sentiment amid global instability contributed to a drop in USD/JPY to 129.

Throughout the year, the gap between the US’s rising interest rates and Japan’s steady policy led to USD/JPY hitting a high of 151.93 in November.

Towards the end of 2023, the Fed softened its approach while Japan maintained its policy, stabilizing the USD/JPY rate around 145.

Economic Outlook in the United States and Japan

The economic outlook for the United States in 2024 hints at a potential recovery. The Federal Reserve might halt interest rate hikes, possibly even reducing rates if inflation declines. Despite the current stability, the risk of a future recession looms.

In contrast, Japan faces a prolonged economic slowdown and stagnant growth. Its challenge is compounded by potential inflation, which the Bank of Japan may struggle to manage due to its focus on controlling yield curves and maintaining low rates.

Additionally, Japan’s aging population and shrinking workforce pose significant long-term economic challenges.

Monetary Policies and Central Bank Actions

In 2023, there was a significant change in the exchange rates between the US dollar and the Japanese yen. This shift was driven by the monetary policies implemented by the Federal Reserve and the Bank of Japan.

Let’s examine their policy decisions and explore their impact on the USD/JPY currency pair.

The Fed’s Hawkish Stance: In response to rising inflation, the Federal Reserve, led by Jerome Powell, raised interest rates four times from March 2023. This policy, aimed at tightening the economy, made the Dollar more attractive to investors due to its higher yield compared to the Yen.

The BOJ’s Dovish Stance: Conversely, under Haruhiko Kuroda’s leadership, the Bank of Japan maintained an accommodative monetary policy. Its quantitative easing program kept interest rates low in Japan, diminishing the Yen’s appeal. The significant interest rate gap between the USD and JPY in 2023 led to the appreciation of the USD/JPY pair.

The July Surprise: In a twist, the Bank of Japan raised its 2024 inflation forecast from 1.4% to 1.6%, briefly boosting the Yen’s value. However, this was short-lived as the Bank continued its loose monetary policy, leading to a rise in USD/JPY prices by July-end.

The Persistent Trend: By the end of 2023, USD/JPY shifted to a bearish trend, influenced by the Fed’s indications of possible interest rate cuts in the coming years.

Global Trade Dynamics

In 2023, global trade dynamics significantly influenced the USD/JPY currency pair.

Key events included:

US-China Tensions: Heightened trade war rhetoric and potential import restrictions pressured the Yen, as concerns over economic disruptions led to a capital shift towards the Dollar.

Supply Chain Disruptions: The Ukraine conflict worsened global supply bottlenecks, negatively impacting Japan’s import-reliant economy and decreasing the Yen’s value.

Regional Trade Alliances: Japan sought to diversify trade partners through agreements with Europe and the UK, aiming to reduce reliance on China, but faced challenges with other regional partners like South Korea and India.

Semiconductor Scramble: Japan’s tech exports were initially hampered by chip shortages, but later supported by increased production and collaborations.

Trade Wars of Words: Debates on trade practices and standards between the US and its allies adversely affected the Yen, with investors turning to the Dollar as a safe haven.

Geopolitical Factors

The year 2023 was not just an economic rollercoaster for the USD/JPY pair; it was also a geopolitical thriller. Here’s how major events sent shockwaves through the currency market:

• Russia-Ukraine War: The outbreak of the war in February forced individuals to search for safer places, which increased the demand for the Dollar and decreased the value of the Yen. The pair was influenced by the impact of conflicts on energy prices and global risk appetite throughout the year.
• North Korean Tensions: The tests and rattling of the hermit kingdom’s missiles increased the regional anxieties and caused the investors to move towards the dollar as it is perceived more stable than other currencies. This also affected the Yen.
• US-China Rivalry: The trade war and the competition between the superpowers have affected Japan’s currency, the Yen. The harsh talk and warnings of sanctions made the currency unstable, as people thought that the economy would fall and everyone would run away to the Dollar. On the other hand, there were some positive developments in the climate change and pandemic response cooperation between the US and China, which might ease the burden on the Yen.
• Taiwan Tensions: Heightened tensions surrounding Taiwan, a crucial chipmaker and potential flashpoint between the US and China, added to the Yen’s woes in the first half of the year. The possibility of military conflict further fueled risk aversion and boosted the Dollar’s safe-haven appeal. However, in the latter part of the year, diplomatic actions brought a sense of calm among the two nations, as they worked on building mutual trust. Thanks to a decrease in the risk of military conflict, the value of Yen against Dollar increased.
• Global Instability: The war in Syria and other political instabilities in different regions also impacted the Yen’s performance poorly. The unstable global situation made investors fearful, causing them to prefer the stability of the US Dollar.

Future Trajectory

The future trajectory of the Yen holds potential yet cautious optimism. The Federal Reserve’s shift to a more dovish stance, possibly reducing rates, along with the Bank of Japan’s subtle indications of policy adjustments, might harmonize monetary policies, leading to a more stable USD/JPY exchange rate.

Japan’s focus on economic innovation and reforms could enhance its competitive edge in exports and lessen reliance on loose monetary policies. However, global factors like economic downturns, the US-China trade dispute, and geopolitical tensions remain significant challenges.

The Yen’s future value hinges on navigating these issues and asserting itself as a reliable currency.

The journey of USD/JPY in 2024 will likely oscillate between cautious optimism and guarded uncertainty, influenced by domestic economic health, central bank decisions, and global events.

TA Forecast for 2024

As we embark on 2024, the USD/JPY pair exhibits a dynamic landscape, already showing a rise of 0.73% to 142.017 in January. The monthly chart analysis reveals a pivotal point at 136.93, with potential resistance levels at 151.45, 160.20, and 170.21.

On the flip side, support is found at 126.93, 116.82, and 102.40. The Relative Strength Index (RSI) stands at 57, suggesting a bullish sentiment, but not overbought. The pair trades above the 50-Day Exponential Moving Average (EMA) of 127.85, indicating a short-term bullish trend.

A potential upward channel points to resistance at 151.45. However, the current overbought status could lead to a pullback to around 136.95, with the EMA providing support.

Looking ahead, the overall trend for USD/JPY in 2024 seems bullish, especially if it sustains above the 127.85 level.

This technical outlook is subject to fluctuations based on global economic events and central bank policies, highlighting the ever-changing nature of currency markets.