Bank of America Global Research discusses USD/JPY outlook and highlights 3 reasons why Japanese bond managers are unlikely to chase USD/JPY higher once the new fiscal year starts.
"First, public pension funds’ portfolios are around the target. Second, life insurance companies’ currency hedge ratio has not recovered much from the 2019 bottom. Finally, our discussion with investors indicate they are concerned about the US fiscal profile and the unstable US bond market. A stabilization in the US bond market could attract Japanese money, but the hedge ratio in new investments would likely be high," BofA notes.
"Thus, we think the correlation between US rates and USD/JPY this year could break as the upward pressure on US rates persists while positional squeeze in USD/JPY may be complete," BofA adds.