In January, the Japanese Yen (JPY) was the worst performing G10 currency. Economists at MUFG Bank analyze JPY outlook. 

Carry attractiveness of the Yen will be diminished as volatility picks up

We maintain that the Yen will strengthen in 2024 as the drivers of JPY depreciation start to reverse – falling global inflation and yields, a rate hike and an end to YCC by the BoJ and a shrinking of the energy trade deficit will all add to Yen demand. 

The carry attractiveness of the Yen will be diminished as volatility picks up, encouraging a liquidation of JPY short positions.