JPY’s structural headwinds; where to target? – BofA

Bank of America Global Research discusses the JPY outlook and maintains a bearish bias targeting USD/JPY around 138 this summer.

“Our discussions with investors indicate the market’s interest in
USD/JPY has been skewed to the downside – at least until very recently –
as the slowdown in the Fed’s rate hikes has coincided with rising
speculation over the BoJ’s potential shift away from ultra-dovish
monetary policy,” BofA notes.

“While USD/JPY’s upside may be capped near-term with a new BoJ
governor set to take over Haruhiko Kuroda in April, we have argued (1) USD/JPY is due to rebound above 135 after spring (BofA forecasts 138 in the summer) and
(2) a cyclical JPY rebound on potential rate cuts by foreign central
banks – possibly in 2024 as priced by the market – would not match the
magnitude of past JPY rebounds, due to JPY’s structural headwinds
limiting the margin of the BoJ’s policy tightening and cyclical
repatriation flow,” BofA adds.

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