On Friday, Bank of America (BofA) revised its forecast for the currency pair and now expects it to reach 1.12 by the end of the year, up from the previously expected 1.15.
The adjustment follows a change in the Federal Reserve’s interest rate policy, with the first cut now expected in December instead of June. BofA cited potential risks from the Fed’s lack of cuts and fluctuating oil prices.
The company also highlighted the impact of escalating geopolitical tensions, rising oil prices and persistently high US interest rates on emerging markets (EM). These factors have been identified as significant challenges, prompting BofA to also revise its forecasts for the exchange rate.
The bank now forecasts USD/JPY to rise to 155 by the end of 2024 and 147 by the end of 2025, which is an upward revision based on the Federal Reserve’s latest forecast adjustments.
BofA has also shifted its stance on the USD/JPY from a slightly short position to a buy position, indicating a change in their trading strategy. The firm noted that most of their positions are light, indicating a cautious approach to currency trading at this time.
In the broader context of currency market dynamics, the BofA stated that a stronger US dollar would likely be more dependent on movements in real money than on speculative trades. This perspective takes into account the actual flow of funds from institutional investors, as opposed to short-term bets from traders.
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