The yen's appreciation faces multiple constraints; the USD/JPY may fall to 145 within the year

ABN AMRO Bank analyst Jane Foley recently shared her market outlook, offering a new assessment of the yen’s prospects. The bank expects the USD/JPY exchange rate to decline from the current level of 156.51 to 145.00 within the next 12 months, indicating a potential for moderate yen appreciation.

However, this appreciation path is not without obstacles. Although political uncertainties have eased, deeper fiscal challenges still pose significant constraints on the yen. Foley pointed out that Japan faces considerable budgetary pressure, especially amid an aging population, with rising defense spending further increasing fiscal burdens. This phenomenon is not unique globally—developed economies like the Netherlands are also confronting fiscal challenges brought about by demographic shifts, which often suppress currency appreciation potential.

On the positive side, Japan’s strong current account performance provides important support for the yen. Large and stable current account surpluses reflect Japan’s export competitiveness and solid foreign investment income, offering a structural advantage that can somewhat mitigate negative impacts from fiscal concerns. However, this protection is not absolute, and whether the yen can ultimately break through these expectations depends on the actual progress of the Bank of Japan’s monetary policy and changes in global risk appetite.

ABN AMRO’s forecast offers an important reference point for market participants: the yen may struggle to appreciate significantly in the short term, but the medium-term outlook remains promising.