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USD/JPY forecast for 2023: Bank of Japan maintains dovish stance, tweaks yield cap

By  Yoke Wong

Edited by Georgy Istigechev


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129.889 USD
-0.538 -0.410%

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A composite picture of US and Japanese banknotes
The Bank of Japan remains ultra-dovish in its monetary policy stance – Photo: beeboys /

The US dollar exchange rate against the Japanese yen (USD/JPY) weakened in the final quarter of 2022, with the yen strengthening at close to 132 per dollar.

JPY has hovered near its strongest levels in two months after lower-than-expected US Consumer Price Index (CPI) numbers bolstered hopes that peak inflation had been reached, and that the Federal Reserve (Fed) would tighten less aggressively in its upcoming meetings.

The yen was also supported after Bank of Japan (BoJ) Governor Haruhiko Kuroda recently hinted at a possible adjustment in the country’s yield-curve control policy “if the achievement of our 2% inflation target comes into sight”.

As noted by analyst Piero Cingari on 19 December: “The yen’s two-month 10% surge – USD/JPY fell from 151.9 to 136 – has been fuelled by a number of factors, including the Japanese FX intervention, speculation about the Fed cutting interest rates next year, China’s reopening, and the rumours behind a BoJ hawkish tilt.”

Despite recent gains, USD/JPY has risen by 15.64% year-to-date, currently trading at levels last seen in the late 1990s.

One of the main factors driving the divergence between the dollar and the yen may be down to the fact the Fed is raising rates aggressively, while the Bank of Japan is keeping its benchmark rate at an ultra-low level. This makes the US dollar the more attractive investment option, which has largely been the case this year. 

USD/JPY Live Exchange Rate Chart

USD/JPY Exchange Rate (2017-2022)Past performance is not a reliable indicator of future results – Source: TradingView, IDC

Based on his USD/JPY analysis, Fawad Razaqzada, a market analyst at StoneX, told

“The USD/JPY has been surging higher because of the rising yield differential between the US and Japan. While the Fed is increasingly returning more hawkish, the BoJ is still pressing ahead with its existing measures to support the Japanese economy.” 

Economies, including the US, have been tightening their monetary policies this year by raising interest rates and slowing asset purchases to counter the effect of rising inflation.

Since March, the US Federal Reserve has aggressively raised its main interest rate to a range of 4.25% and 4.5% as it tries to tackle the rising cost of living.

Japan remains the exception among developed economies, refusing to budge on its negative key interest rate of -0.1%. The BoJ said in May that it would continue to conduct aggressive monetary easing through yield-curve control to reduce the uncertainties in financial markets.

In its final meeting in mid-December, the BoJ unexpectedly loosened its 10-year government bond yield target and committed to a review of its controversial yield-curve control policy. 

The move triggered a leap in the yen, which had spent most of the year sliding because of Japan’s low yields, coupled with a bearish Japanese stock market and the global bonds sell-off.

The cap on 10-year Japanese government bond yields (JGB) allows the yields to move up to 50 basis points (bps) on either side of the 0% target, up from the original 25 bps. At a low of 0%, the 10-year JGB keeps borrowing costs low for both state and private businesses.

The move, however, arrived earlier than expected, as most market watchers were looking for a yield target adjustment closer to the end of 2023.

Are you interested to learn more about the USD/JPY outlook in the near to mid-term? Read on for the latest USD/JPY news and analysts’ forecasts.

Bank of Japan maintains dovish policy

Speaking to reporters after the yield target rate decision on 20 December, Kuroda was at pains to note that this wasn’t an effective rate hike. “This isn’t the first step towards an exit,” he said, stressing over and over again that the move was a technical one to smooth the yield curve and not intended to signal a more hawkish turn. “Reviewing yield-curve control or the quantitative and qualitative easing programme is unthinkable for the foreseeable future.”


0.70 Price
-0.400% 1D Chg, %
Long position overnight fee -0.0079%
Short position overnight fee 0.0000%
Overnight fee time 22:00 (UTC)
Spread 0.00006


129.89 Price
-0.410% 1D Chg, %
Long position overnight fee 0.0051%
Short position overnight fee -0.0175%
Overnight fee time 22:00 (UTC)
Spread 0.011


1.23 Price
-0.240% 1D Chg, %
Long position overnight fee -0.0063%
Short position overnight fee -0.0011%
Overnight fee time 22:00 (UTC)
Spread 0.00013


1.09 Price
+0.060% 1D Chg, %
Long position overnight fee -0.0106%
Short position overnight fee 0.0015%
Overnight fee time 22:00 (UTC)
Spread 0.00006

Bloomberg’s Gearoid Reidy and Daniel Moss commented on the decision:

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“Nonetheless, it will be tempting to come to the conclusion that the BoJ is the final chapter in a monetary-policy year for the history books. According to this argument, the most aggressive tightening in decades by central banks proved irresistible, even to perennial hold out, Japan. It’s not entirely without merit: Even the relatively modest price gains in Japan compared to the US and Europe are a shock for people more accustomed to warding off deflation.

“But the perspective also has some significant caveats. Kuroda has made policy somewhat less loose, but it’s a long way from tight. The era of easy money continues: The benchmark rate is still negative and the BOJ still says it’s prepared to ease further if necessary. Moreover, Kuroda’s decision comes late in the game. The BOJ may have moved a bit toward the other major economies, but they are getting ready to edge toward his position; the rate cycle around the world is close to peaking and borrowing costs may well retreat in 2023.”

Fed raises interest rate to counter rising inflation

The consumer price index (CPI) in the US – the main measure of inflation – has been rising every month since January 2021. The index measures what consumers pay for goods and services, including clothes, groceries, restaurant meals, recreational activities and vehicles.

As inflation in the US rose to a 40-year high, the Fed quickly ended its bond-buying programme and started a rate-hiking cycle. In March’s Federal Open Market Committee (FOMC) meeting the Fed raised interest rates by 25bps, followed by a 50-point hike in May.

The Fed then raised interest rates by a further 75bps in four consecutive meetings on 16 June, 27 July, 21 September and 2 November, lifting the benchmark overnight borrowing rate to a range of 3.75%–4%.

On 14 December, however, the Fed slowed down its pace of rate hikes, boosting the overnight borrowing rate by half a percentage point, taking it to a targeted range between 4.25% and 4.5% – a move that was widely expected by markets. The Fed also indicated that it expects to keep rates higher through next year, with no reductions until 2024.

CPI most recently came in at 7.1% year-on-year in November – the “smallest 12-month increase since the period ending December 2021”, according to the US Bureau of Labor Statistics.

The figure indicates a slowdown of inflation in the US, but the rate of price increases still remains way off the Fed’s target, meaning the end of the monetary contraction cycle could still be some time away.

USD/JPY technical analysis

The market saw the BoJ’s policy tweak as an early, surprise pivot – the yen punched 3.5% higher against the dollar on 20 December, with USD/JPY breaking below the 200-day moving average.

In a piece published on 21 December, FXStreet analyst Haresh Menghani commented:

“The USD/JPY pair edges higher during the Asian session on Wednesday and moves away from over a four-month low touched the previous day in reaction to the Bank of Japan’s policy tweak. A late recovery in the US equity markets kept a lid on any further gains for the safe-haven JPY and assisted the USD/JPY pair to find some support in the vicinity of mid-130.00s. Apart from this, the emergence of some US dollar buying, bolstered by a further rise in the US Treasury bond yields, provides a modest lift to the major. In fact, the yield on the benchmark 10-year US government bond climbs to a fresh monthly low in the wake of a more hawkish commentary by the Fed last week, indicating that it will continue to raise interest rates to crush inflation.

“From a technical perspective, the overnight sustained weakness below the very important 200-day SMA and a subsequent break through the 50% Fibonacci retracement level of the strong 2022 rally was seen as a fresh trigger for bearish traders. That said, extremely oversold oscillators on intraday charts helped limit the downside, only for the time being.

“Any further recovery, however, is likely to confront resistance near the 132.70 area (50% Fibonacci level). Some follow-through buying beyond the 133.00 mark might prompt some short-covering move towards the 134.00 round figure. The next relevant hurdle is pegged near the 134.40 horizontal zone, above which the USD/JPY pair could aim to reclaim the 135.00 psychological mark.”

In a recent overview of the currency pair, analyst Piero Cingari said:

“Overall, the BoJ is not deviating from its ultra-loose monetary policy, and has actually announced to increase the purchase of bonds between January and March, amid mounting growth risks for the Japanese economy.

“I continue to believe that this is an overreaction, compounded by the lack of liquidity at this time.”

In a comment to’s Adrian Holliday, FX strategist and finance consultant at Keirstone, Francis Fabrizi, said the following of USD/JPY on 21 December:

“USD/JPY failed to hold above the 136.500 resistance level yesterday. The price dropped dramatically from this level after the surprise news from BoJ overnight. The price has found support at 132.000 this morning. I expect a small pullback from this level to 133.000 before we see further bearish momentum.

“If the price is able to break below the 132.000 support level, I believe 130.000 will be the next target. I anticipate the price will attempt to retest 134.500 later this week.

“As the price has fallen below 134.500, it is possible this is indication of a price reversal.”

USD/JPY forecast for 2023

USD/JPY Exchange Rate (2017-2022)

Fiona Cincotta, senior market analyst at City Index, shared her view on the factors affecting the dollar/yen forecast with

“Central bank divergence has been the main driver. The Fed is expected to continue along its hawkish path, while the BoJ, in stark contrast, remains firmly dovish; one of the most dovish major central banks. This Fed-BoJ divergence is expected to be a key driving force for a few more months yet.”

As of 21 December 2022, according to data provider TradingEconomics, the yen was expected to trade at 139.185 against the US dollar by the end of this quarter. The website forecast USD/JPY to trade at 146.882 in 12 months’ time.

ING predicts the Japanese yen will weaken against the US dollar in the short term, ending the year at the 138 mark. The bank’s USD/JPY forecast for 2023 had the pair maintaining at around the 130 level by the end of the year, indicating returning strength for JPY.

Citibank believes the Japanese yen will fall against the USD. Analysts at Citibank suggest the USD/JPY pair will rise to 145 by the end of 2023. In their FX Snapshot from 19 December, the bank’s analysts wrote:

“UST [Treasury] yields may continue to trend lower long-term towards 3% in 10 years on the back of a US recession. This may strengthen JPY long-term. But BoJ to keep YCC [yield-curve control] for now. Citi expects BoJ to stay the course with YCC until the end of 2025.

“DXY’s lack of follow-through from the 114.57 high made in late September probably suggests a peak in DXY is in and JPY may stabilise at levels well above its lows for this year (around the 144-145 area vs 151.95 in October).”

The USD/JPY forecast for 2025 and USD/JPY forecast for 2030 are more difficult to obtain as macroeconomic factors weigh heavily on the market. 

When looking at USD/JPY predictions, keep in mind that analysts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing, and never invest or trade money you cannot afford to lose.


Why has USD/JPY been rising?

Currencies are traded against each other as exchange rate pairs, as the trader will need to buy or sell a currency against another. Based on the current exchange rate, $1 is equivalent to approximately JPY132. The exchange rate over the past year indicates that the Japanese yen is weakening against the US dollar, having lost 15.6% of its value against the greenback.

Will USD/JPY go up or down?

According to TradingEconomics, the Japanese yen is expected to trade at 139.185 by the end of this quarter and 146.882 in 12 months' time, according to the website’s global macro models and analysts’ expectations. 

Whether or not USD/JPY is a suitable investment for you depends on your personal circumstances and risk tolerance, among other factors. Keep in mind that past performance is no guarantee of future returns, and never invest money that you cannot afford to lose.

What is the best time to trade USD/JPY?

The ideal time to trade USD/JPY is generally at between 12:00 to 15:00 Greenwich Mean Time (GMT), when market activity is at its highest level.

Why has the USD/JPY rate been going down?

As noted by analyst Piero Cingari on 19 December: "The yen’s two-month 10% surge – USD/JPY fell from 151.9 to 136 – has been fuelled by a number of factors, including the Japanese FX intervention, speculation about the Fed cutting interest rates next year, China’s reopening, and the rumours behind a BoJ hawkish tilt."

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