While the Yen underperformed during the global monetary tightening phase, in the view of economists at Wells Fargo, the JPY will likely outperform as tightening cycles eventually come to an end and central banks turn to easing.

Japanese Yen strength over time

“We believe the Japanese Yen can experience a strong rebound as bond yields, especially in the United States, eventually come down, and less negative yield spreads support the Japanese currency.”

“During the global tightening phase in which Japan maintained its easy monetary policy stance, the yen came under significant downside pressure. On the flip side, as the global monetary policy cycle turns to easing, we expect the Yen to be a key beneficiary and target a USD/JPY exchange rate of 127.00 by the end of this year.”