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Apr 12 - 02:55 PM

BofA: USD/JPY Now Firmly in Policy Intervention Zone, Potential BoJ Adjustments on Horizon

By eFXdata  —  Apr 12 - 01:15 PM

Synopsis:

Bank of America (BofA) notes that the USD/JPY exchange rate has escalated above 152, positioning it within a critical policy intervention zone following strong US CPI data from March. This development triggers a reassessment of potential interventions by Japan's Ministry of Finance (MoF) and potential adjustments in monetary policy by the Bank of Japan (BoJ).

Key Points:

  • Entrance into Intervention Zone: The elevation of USD/JPY to levels above 152 signals its entry into what BofA identifies as a policy intervention zone. This move, driven by heightened US inflation figures, raises the likelihood of intervention by the Japanese MoF to stabilize the currency's value.

  • Scenarios Following MoF Intervention: Should the MoF intervene, USD/JPY could stabilize in the 145-150 range for the near term. However, a delayed rate cut by the Federal Reserve until year-end could push USD/JPY into a 150-155 range by the third quarter of 2024, with potential spikes up to 160 if the Fed abstains from cutting rates.

  • BoJ Monetary Policy Adjustments: A persistent high range for USD/JPY might compel the BoJ to scale back its bond-buying activities, particularly in the 3-5 year and 5-10 year sectors of JGBs. This adjustment would likely lead to underperformance in the 10-year JGB market, impacting Japan's long-term yield curves.

Conclusion:

BofA underscores the significant market and policy implications as USD/JPY enters a decisive intervention zone. The potential responses from the Japanese MoF and adjustments by the BoJ in their bond-buying strategies will be critical to watch, as they aim to stabilize the currency and manage economic impacts. Investors and policymakers should closely follow these developments, given their considerable influence on both currency and bond markets in the upcoming months.

Source:
BofA Global Research

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