Anna 
The USD/JPY and EUR/JPY currency pairs have initiated a decline, prompting economists at ABN Amro to analyze the Yen’s outlook. The primary catalyst behind the Yen’s recovery has been speculation surrounding the Bank of Japan (BoJ) potentially commencing a policy rate hike in March. While similar speculation occurred at the end of the previous year, resulting in market disappointment when the BoJ did not initiate a hiking cycle, there is renewed anticipation for a potential start this month.
ABN Amro acknowledges that even if the BoJ begins the hiking cycle, the communication strategy and/or the pace of rate hikes might disappoint market expectations. Despite these uncertainties, the bank expects the Yen recovery to persist. The anticipated narrowing of spreads between the United States and Japan, as well as the Eurozone and Japan (much of which is already factored in), is anticipated to drive lower levels in USD/JPY and EUR/JPY.
A crucial factor in the Yen’s favor is the potential divergence in monetary policy, with the BoJ possibly hiking rates while the Federal Reserve (Fed) and European Central Bank (ECB) consider rate cuts. ABN Amro emphasizes that most of the policy action is expected from the ECB and the Fed, projecting a very gradual hiking path by the BoJ. The supportive nature of a diverging monetary policy could contribute to the Yen’s strength.
