Citi projects a sustained weakening of the U.S. dollar against the Japanese yen over the long term now that U.S. midterm elections have concluded. The bank, however, cautioned that the path to that outcome could include periods in which the yen weakens, particularly in the near to medium term.
Near-term movements, Citi said, will be shaped by several market forces. The direction of U.S. equities after the elections is a key variable, and the bank also singled out geopolitical risk and crude oil prices - specifically those tied to the situation in Iran - as important near-term influences on the currency pair.
Citi noted a series of questions it sees as central to determining whether a sustained dollar decline against the yen has truly begun, asking what data would confirm a durable downtrend and which specific factors could strengthen the yen following the midterms. The bank framed those questions without offering additional, new quantifiable triggers beyond the broad influences it identified.
Regarding policy and market interventions, Citi does not expect a change in the ongoing stance of Japanese authorities to defend the yen. The bank anticipates that the next official intervention would involve purchases of the yen if USD/JPY approaches or tests ¥160 per dollar. During such intervention, authorities would likely aim to drive the pair back below ¥155 per dollar, Citi said.
Despite the expectation of a long-run downtrend in USD/JPY, Citi emphasized that risks of yen weakness remain in the short to medium term. The bank also highlighted the role crude oil prices play in shaping the economic policy framework outlined by Treasury Secretary Scott Bessent, according to Citi's assessment.
The bank's view therefore combines a longer-term directional call for a weaker dollar against the yen with a cautionary note about possible interim episodes of yen depreciation driven by equities, geopolitics and energy prices, and it reiterates readiness by Japanese authorities to intervene at specified exchange-rate levels.