The world¡¯s worst-performing major currency looks poised for an impressive turnaround in 2023 as its two key drivers ¡ª a hawkish U.S. Federal Reserve and dovish Bank of Japan ¡ª swap places in the eyes of some investors.
The yen ¡ª a favored short against the dollar for a majority of this year ¡ª could rally more than 7% from current levels next year, according to Barclays and Nomura Holdings, while Vontobel Asset Management said fair value is below ?100 per dollar ¡ª over 30% stronger. State Street Global Markets sees a quick snap back as fears of aggressive U.S. interest rate hikes recede, while T. Rowe Price said there¡¯s scope for gains on a more hawkish BOJ.
¡°We are probably approaching peak yen weakness to the dollar,¡± said Sebastien Page, head of global multiasset at T. Rowe, which oversees $1.28 trillion in assets. When the Fed finally pauses on hiking, ¡°there is room for the Bank of Japan to surprise the market by being a bit more aggressive¡± on policy and boost the currency.
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