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Deutsche Bank says the conditions for a big dollar downtrend have not yet been met, even if the Fed cuts as much as the markets currently anticipate.

At the same time, the conditions for a sizeable rebound in the Yen - a consensus expectation amongst institutional analysts - are unlikely to materialise.

This leaves strategists at the bank looking for a stronger Dollar to Yen exchange rate in 2024.

"The dollar should remain a high-yielder, while the market is likely to start adding to a USD safe-haven premium through the year as election risks build," says George Saravelos, Global Head of FX Research at Deutsche Bank Research.

The Dollar has advanced by 3.4% against the Yen already in 2024, with markets paring bets for the scale of likely Fed rate cuts.

The powerful earthquake that hit Japan on January 01 has meanwhile lowered bets for an imminent rate hike at the Bank of Japan, undermining the Yen.

Saravelos says the risks following the earthquake are again skewed towards a further delay in normalization in Bank of Japan policy.

It is the anticipation of Bank of Japan rate hikes in the early part of 2024 that is keeping some market participants bullish on the Yen's prospects over the coming months.

"The yen may stay on the back foot for a while longer as more traders start accepting the idea that a BoJ rate increase is not imminent. However, with other major central banks seen reducing interest rates later this year and the BoJ eventually beginning to tighten, the current yen slide may be better considered a corrective retreat rather than a bearish reversal," says Charalampos Pissouros, Senior Investment Analyst at XM.com.

Above: Bank of Japan quantitative easing continues, while others embark on quantitative tightening.

But Tim Baker, a Deutsche Bank analyst in Sydney, says a patient Bank of Japan won't raise rates anytime soon and will stick with its Quantitative Easing policy, given inflation is no longer surprising to the upside.

"USD/ JPY has upside risk, and we believe being long will continue to earn healthy carry," he says.

Meanwhile, the dollar leg of the dollar-yen could be supported further as investors 'price out' imminent Fed rate cuts.

"The market got very excited in Q4 about disinflation in the US and elsewhere and moved to price substantial cuts as early as 2Q23 (with the green light from the Fed). But while lower inflation is a necessary condition for rate cuts, we're not sure it's sufficient," says Baker.

Elsewhere, Japan's basic balance is considered unfavourable to the Yen as the country witnesses sizeable portfolio outflows and solid outbound Foreign Direct Investment.