Bank of America (BofA) discusses expectations for the upcoming Bank of Japan (BoJ) policy meeting and provides a forecast for the USD/JPY exchange rate.
BoJ's Policy Path:
- BofA's economists predict that the BoJ will exit its Negative Interest Rate Policy (NIRP) and Yield Curve Control (YCC) between April and July 2024. This would be followed by two additional rate hikes, each of 25 basis points, in the later parts of 2024 and early 2025, ultimately bringing the policy rate to 0.5% by mid-2025.
Bearish JPY Outlook:
- Contrary to the consensus view, BofA remains bearish on the Japanese Yen. Their year-end forecast for USD/JPY is 142, compared to the Bloomberg consensus of 135, indicating a weaker yen.
January Meeting Impact:
- The January Monetary Policy Meeting (MPM) of the BoJ is not expected to be a significant driver for the yen in the near term, given the lack of new substantial economic and inflation data.
Global Factors and Seasonality Influence:
- In the first quarter of 2024, global dynamics and seasonal trends are likely to influence the yen more than domestic policies. BofA maintains a near-term outlook of 145 for USD/JPY at the end of March.
Limited Upside for USD/JPY:
- The theme of policy convergence is expected to limit the upside potential for USD/JPY. Additionally, hedging activities by exporters may also exert downward pressure on the currency pair.
BofA anticipates a gradual policy normalization by the BoJ, starting in mid-2024, but does not foresee it as a significant catalyst for yen appreciation this year. The USD/JPY rate is predicted to remain elevated in the near term, influenced more by global factors and less by the BoJ's January meeting.