Citi Forecasts USD/JPY Hitting 163 if Topix Index Reaches 4,500

A new forecast from Citi suggests the U.S. dollar could climb to ¥163 against the Japanese yen if the country's benchmark Topix stock index reaches the 4,500 mark. The analysis, detailed in a research note released Thursday, highlights the complex relationship between Japan's equity market performance and currency valuation.

The Link Between Equities and the Yen

According to Citi, the firm's current estimate for the USD/JPY exchange rate, based on the Topix index's present level, is approximately ¥160. The bank noted that historically, high levels for Japanese stocks have often amplified yen depreciation.

This dynamic occurs as both domestic and overseas investors engage in portfolio rebalancing and hedge transactions, which can increase selling pressure on the yen. The Topix index is a broad measure tracking all domestic companies listed on the Tokyo Stock Exchange’s Prime Market.

A Shifting Relationship

However, Citi's analysts observed that the strong correlation between a rising stock market and a weakening yen has loosened since 2024. This shift is attributed to two primary factors:

Ad

• A contraction in the monetary policy gap between Japan and other major economies.
• Periodic foreign exchange intervention by Japanese authorities to purchase and support the yen.

The note also stated that the current USD/JPY rate already anticipates, to some extent, the ongoing strength in Japanese equities.

Key Risks and Outlook

Looking ahead, Citi identified potential risks that could lead to further yen weakness, including changes to the interest rate spread or a shift in the Japanese government's policy on currency intervention. Citing these variables, the firm recommended that investors maintain a cautious approach to the currency pair.