Quantitative Analysis /
Japan

Yen to slump further as Bank of Japan hits 2% inflation target

  • The yen has fallen 12.95% against the US dollar since the beginning of the year, with the Bank of Japan remaining dovish

  • We forecast the currency to fall by a further 7.86% , to 140.05, over the next 12 months

  • Meanwhile, Japan’s inflation is expected to finally hit the central bank’s ambitious target of 2%

Yen to slump further as Bank of Japan hits 2% inflation target
James Huckle
James Huckle

Quantitative Analyst

Tellimer Research
3 May 2022
Published by

Overview

The yen is currently at 129.85 to the US dollar, down from 115.10 at the start of the year – a significant 12.95% drop.

The currency has weakened by 26.18% against USD since the start of 2021, and the trend has accelerated in light of a statement on 28 April from the Bank of Japan (BoJ), which doubled down on keeping 10-year bond yields at 0% and vowed to purchase an unlimited number of bonds to defend its target.

Quantitative 12-month forecast

Our machine-learning model forecasts a steadying of the exchange rate over the next three months as the market takes stock of the recent spike; however, it expects continued weakening of the currency by August, gaining momentum by Q2 23.

As JPY/USD breaks above the prominent inverse head and shoulder neckline (see chart above), the next target is the 2002 high of 135.16, followed by the final forecast value of 140.05 by May 2023 – a 7.86% fall in the yen from current levels.

Inflation is finally on target

Meanwhile, consumer inflation in Japan is on track to rise to 2% this month for the first time in seven years, according to Nikkei's recent survey of economists. This is precisely the target set out by the BoJ and is likely a key driver of the weakening currency.

Japan Inflation Rate