Investing.com – The dollar has dominated the yen this year as the Federal Reserve and the Bank of Japan implement adversarial monetary policy measures, and now the risk is growing for its exceed before an expected correction in the first quarter of next year, strategists said. from BofA in a recent note.
“We are structurally bullish on USD/JPY but have been expecting a correction in 1Q25 on increased US policy uncertainty,” BofA said, although it highlighted the risk of an overshoot USD/JPY due to Bank of Japan, or BoJ, rate hike fades.
USD/JPY rose above 153 last week as the market dismissed expectations for a BoJ rate hike at its December meeting, the strategist said.
This rate fell from over 60% at the end of November to just 16% as of now, after media reports suggested the BoJ is likely to keep rates unchanged due to policy uncertainty US economic and wage trends.
The falling rate of BoJ rate hikes increases the risk of overshooting USD/JPY, which could prompt foreign exchange intervention by the Japanese Finance Ministry ahead of the BoJ monetary policy meeting in January. said the strategists.
If USD/JPY trades near 155 before the BoJ meeting in December, the lack of a rate hike could affect the market's views on Japan's monetary policy. “The FX market would interpret recent media reports like the BoJ well with USD/JPY somewhere below 155,” they said.
Before the December BoJ meeting
December 18-19, the BofA strategy expects that if USD/JPY rises after the meeting, intervention risks may be limited due to thin liquidity conditions typical of year-end trading.
