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Citibank says the prospect of a market intervention by Japanese authorities is increasingly likely following the 2024 depreciation in the Yen.

The bank says it predicts a lower Dollar-Yen rate across the forecast horizon and a turning point is increasingly likely in the run-up to 155.

"With the USDJPY strengthening above 150, the Japanese MoF is likely to move to prevent further depreciation," says a note from Citi.

The Yen strengthened into year-end 2023 as markets became increasingly confident the Federal Reserve would cut interest rates as soon as March, which lowered the U.S. and Japanese bond yield differential.

But the pushback in expectations for the first Fed rate cut has boosted the Dollar and ensured the Yen's gains of late 2023 have all but been erased.

Citi Analysts expect the Japanese government to intervene to prevent further significant devaluation and buy the JPY before a rise above 155 in USD/JPY.

"In this case, the process of normalising monetary policy by the BoJ would also likely accelerate," says Citi.

Strategists at the bank - which is one of the world's biggest prime dealers in FX - say a broader retreat in the Dollar index (DXY) into the 102 – 104 range should see "USD/JPY tactically return to its 146 – 148 trading range heading into Q2."

Citi forecasts the Dollar-Yen exchange rate at 150 on a 0-3 month timeframe, 138 on a 6-12 month timeframe and 130 on a long-term timeframe.

The Bank of Japan is widely expected to raise interest rates before mid-year and end its negative interest rate policy, which can offer the Yen support.

Wei Li, Global Chief Investment Strategist at BlackRock Investment Institute, says March will be a pivotal month for Japanese markets, with the annual union wage negotiations – which will likely shape the inflation outlook – taking place.

The Bank of Japan's next policy meeting also falls in March.

"The negotiations should help signal if inflation has become entrenched. We think the BOJ will end negative interest rates in the coming months but will need more evidence of sustained inflation before raising rates further," says Lei.

Blackrock doesn't see wages growing enough to keep inflation sustainably at the Bank of Japan's 2% target, and that’s why it doesn't think the Bank of Japan will tighten policy as much as markets expect.

Such a realisation would limit the Yen's rebound potential over the coming months, particularly if other global central banks cut interest rates in a conservative fashion.