On Friday, Bank of America (BofA) revised its forecast for the currency pair, expecting it to reach 1.12 by the end of the year, up from a 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 rather than June. BofA pointed out potential risks associated with the lack of Fed rate cuts and fluctuations in oil prices.
The firm also highlighted the impact of escalating geopolitical tensions, rising oil prices and persistently high US interest rates on emerging markets (EM). These factors were identified as significant challenges, prompting BofA to also revise its exchange rate forecasts.
The bank now forecasts USD/JPY to rise to 155 by the end of 2024 and 147 by the end of 2025, an upward revision based on the latest adjustments to the Federal Reserve’s forecasts.
BofA also changed its position on the USD/JPY pair from short to buy, indicating a change in their trading strategy. The firm noted that most of their positions are light, suggesting a cautious approach to currency trading at the moment.
In the broader context of foreign exchange market dynamics, BofA said the US dollar’s strength will likely depend more on real money movements rather than speculative trades. This perspective takes into account the actual flow of funds from institutional investors, rather than short-term bets made by traders.
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