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Jan 17 - 01:24 PM

JPY: Carry Trade Until Optimism Exhausted; Where To Target? - BofA

Published on Jan 17 - 11:45 AM

Bank of America Global Research discusses the JPY outlook and maintains a tactical bearish bias targeting USD/JPY through 112 in Q1 before topping out and reversing towards 103 by year-end. 

"We are tactically bearish on JPY as a funding currency against cyclical currencies. However, we think it will face a downside limit when positioning and valuation in risk assets become stretched as risk-reward should shift from shorting JPY as a carry trade to buying JPY as a risk-off hedge," BofA notes. 

"We are bearish on JPY against cyclical currencies until optimism is exhausted and becomes euphoric. We would shift our stance to buying JPY and vol as a hedge if valuation and positioning reach extremes, especially in light of US election risk. 

We expect USD/JPY to peak out at 110-112 in 1Q20 and head lower to 103 by year-end. We assume a range of 100-113 for 2020," BofA adds. 

BofA Global Research


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