BofA: USD/JPY dips to remain shallow; three reasons for targeting 147 by September

Bank of America (BofA) outlines three primary
reasons why dips in the USDJPY exchange rate are likely to be both
shallow and short-lived. Despite the Bank of Japan’s (BoJ) recent
adjustments to its Yield Curve Control (YCC), BofA maintains its
expectation for USDJPY to rise to 147 by September.

Key Points:

• Unlikely Capital Repatriation: BofA does not foresee
  Japanese investors repatriating capital in the current fiscal year due
  to the recent YCC tweaks. This lack of repatriation is attributed to the
  preparation investors undertook last fiscal year in anticipation of
  BoJ’s policy normalization.

• No Indication of Multiple Rate Hikes: Despite the
  BoJ’s recent action, BofA believes it does not necessarily indicate a
  clear change in stance towards multiple rate hikes. Governor Ueda
  reiterated a patient stance, possibly acknowledging inflation’s upside
  risks.

• Reduced Market Volatility: Interestingly, the
  adjustments in YCC seem to have led to a decline in the USDJPY’s implied
  volatility, contradicting the idea that these changes might spark
  increased market volatility.

Summary:

BofA asserts that recent changes to the BoJ’s YCC are unlikely to
significantly impact the USDJPY exchange rate. The bank predicts that
any dips in the exchange rate will be both brief and limited in scope,
maintaining its outlook for USDJPY to reach 147 by September. This
forecast is supported by the lack of expected capital repatriation by
Japanese investors, no clear indication of multiple rate hikes from the
BoJ, and a decrease in implied market volatility.

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