Citi provided insights into the upcoming meeting between Japanese Prime Minister Shigeru Ishiba and US President Donald Trump, scheduled for February 7.
In terms of currency exchange, Citi suggested that there is a greater chance of the USDJPY exchange rate returning to around ¥157/$ rather than dropping below ¥153/$ in the near term.
The financial services company indicated that President Trump has maintained a relatively neutral position towards Japan so far, suggesting minimal likelihood of new tariffs targeted at the country. Citi's analysis comes ahead of the leaders' summit, where discussions may include currency policy and the Japanese yen's weakness.
The report highlighted the political dynamics at play, noting that Prime Minister Ishiba was a rival of Shinzo Abe, Trump's close ally during his tenure as Japan's Prime Minister. While the historical relationship between Abe and Trump could be a factor, Citi's base-case scenario predicts that Japan will address the yen's depreciation, potentially through the normalization of its monetary policy.
Citi acknowledged the unpredictability of international diplomacy, conceding that a sudden shift towards a more aggressive stance by President Trump towards Japan cannot be entirely discounted. However, they consider this outcome to be less probable.
The meeting between the two leaders is poised to address key issues of mutual interest. While the potential for unexpected developments exists, Citi's outlook remains cautiously optimistic about the stability of US-Japan relations and the short-term trajectory of the yen against the dollar.
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