Citi and Bank of Japan Policy Divergence Drives USD/JPY Outlook, Impacting Currency and Crypto Markets

The USD/JPY exchange rate has experienced renewed volatility following ongoing policy divergence between the U.S. Federal Reserve and the Bank of Japan. While the Fed maintains higher interest rates, the BoJ has kept its benchmark rate low and remains dovish, causing the yen to weaken against the dollar. Citi has forecasted a notable upward correction in the USD/JPY pair, driven by persistent interest rate differentials, monetary policy outlooks, and key macroeconomic indicators such as inflation, GDP growth, and employment. Recent BoJ moves to exit negative rates have been modest, underlining continued divergence. Earlier, the yen had lost ground after the BoJ delayed reaching its inflation target and signaled increased downside price risks. Market sentiment remains cautious, with traders scaling back expectations for near-term BoJ tightening. For crypto traders, these developments could lead to heightened yen volatility, stronger USD/JPY momentum, and increased use of digital assets for currency hedging and cross-border transactions. The ongoing macro and FX uncertainties support digital assets’ appeal as alternative stores of value, especially as traders seek to navigate fluctuating risk sentiment and monetary policy factors.