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.