USDJPY: Strategy Views from Credit Agricole

Persistent US inflation due to sticky services inflation could mean the Fed has to hold off cutting rates until Q324 and then by only 50bp in 2024. Japan still faces structurally low inflation due to high corporate savings; the BoJ is not expected to hike rates in 2024. With the Fed and BoJ likely to disappoint investors, USD/JPY could rally nearterm. Fed rate cuts will encourage repatriation flows from USTs back into JGBs. USD/JPY realised volatility is below its post-GFC average. Geopolitics could provide a source of higher volatility for JPY-crosses in 2024 and
lead to JPY strength. A Trump election win threatens a 10% tariff on US imports. Congressional approval to levy the tariff is required, which will likely frustrate his efforts. If Trump did manage to levy a broad tariff, trading partners would likely respond with tariffs of their own, leading to a global tax on international trade and risk-off trading. Japan’s economy has a lower dependency on trade relative to other G10 economies. So, while risk-off trading would support the JPY vs most G10 currencies, the USD would prevail against the JPY.