Citi Forecasts USD/JPY to Reach 165 Amid Bank of Japan Policy Uncertainty

Analysts at Citi project the U.S. dollar could climb to 165 against the Japanese yen in the near term, identifying the upcoming Bank of Japan (BoJ) policy meeting as a key catalyst for potential yen weakness.

Focus on Policy Independence

Citi expects the Bank of Japan to keep its policy rate unchanged at the conclusion of its meeting, according to a recent analyst note. The firm suggests that market attention will instead focus on Governor Kazuo Ueda’s press conference, where questions are likely to center on the central bank's independence.

Concerns have been raised by references in the government’s draft economic blueprint that could be interpreted as political pressure. Citi noted that the Bank of Japan Act makes it difficult for the governor to strongly oppose government intentions while also advocating for the central bank's autonomy.

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Drivers of Yen Weakness

The investment bank views the event risk from the meeting as tilted toward yen depreciation. This outlook is based on what Citi describes as apparent wavering by the Japanese government and the Ministry of Finance regarding a clear policy for currency intervention to support the yen.

According to Citi, the combination of these two factors creates the potential for the yen to weaken further. This underpins the bank's forecast for the USD/JPY exchange rate to rise toward the ¥165 level in the near term.