Danger of a USD/JPY overshoot into new yr: BofA

Investing.com — The greenback has dominated the yen this yr because the Federal Reserve and Financial institution of Japan implement opposing financial coverage measures, and now the danger is rising for the USD/JPY to overshoot earlier than an anticipated correction within the first quarter of subsequent yr, strategists from BofA stated in a current notice.

“We’re structurally bullish on USD/JPY however have anticipated a correction in 1Q25 on elevated US coverage uncertainties,” BofA famous, although flagged the danger of the USD/JPY overshooting as bets on a Financial institution of Japan, or BoJ, price hike fade.

USD/JPY rose above 153 final week because the market priced out expectations for a BoJ price hike at its December assembly, the strategist stated. 

This pricing dropped from over 60% on the finish of November to only 16% as of now, following media reviews suggesting that the BoJ is inclined to carry charges unchanged because of uncertainties round US financial coverage and wage developments.

Falling odds of a BoJ price hike will increase the danger of USD/JPY overshooting, doubtlessly triggering international change intervention by Japan’s Ministry of Finance earlier than the BoJ’s January financial coverage assembly. the strategists stated.

If USD/JPY trades near 155 earlier than the BoJ’s December assembly, the shortage of a price hike may influence market perceptions relating to Japan’s foreign money coverage. “The FX market would interpret current media reviews because the BoJ being high-quality with USD/JPY someplace under 155,” they added.

Within the lead as much as the BoJ December assembly on