“We are structurally bullish on USD/JPY but have expected a correction in 1Q25 on increased US policy uncertainties,” BofA noted, though flagged the risk of the USD/JPY overshooting as bets on a Bank of Japan, or BoJ, rate hike fade.
USD/JPY rose above 153 last week as the market priced out expectations for a BoJ rate hike at its December meeting, the strategist said.
This pricing dropped from over 60% at the end of November to just 16% as of now, following media reports suggesting that the BoJ is inclined to hold rates unchanged due to uncertainties around US economic policy and wage trends.
Falling odds of a BoJ rate hike increases the risk of USD/JPY overshooting, potentially triggering foreign exchange intervention by Japan’s Ministry of Finance before the BoJ’s January monetary policy meeting. the strategists said.
If USD/JPY trades close to 155 before the BoJ’s December meeting, the lack of a rate hike could impact market perceptions regarding Japan’s currency policy. “The FX market would interpret recent media reports as the BoJ being fine with USD/JPY somewhere below 155,” they added.
In the lead up to the BoJ December meeting on
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