Bank of American now forecasts USD/JPY peak this year in the 155-160 range

Bank of America has revised its forecast for the USD/JPY exchange rate upwards, predicting that it will reach higher levels by the end of 2024 and 2025. The adjustment is based on several factors, including sustained capital outflows of Japan, an accommodating monetary policy. by the Bank of Japan (BoJ) and the dynamics of US interest rates.

Key points:

• Revision of rate projections: BofA increased its forecast for USD/JPY from 142 to 155 by the end of 2024, with an expected peak in the 155-160 range during the year. For the end of 2025, the forecast has been adjusted from 136 to 147. These revised forecasts are significantly higher than the current Bloomberg consensus and forward rates.

• Capital outflows from Japan: There is clear evidence of an acceleration in capital outflows from Japan, which is a significant factor in the depreciation of the yen. These outflows are primarily directed to the United States, fueled by differences in yield expectations and economic prospects between the two countries.

• BoJ’s accommodative policy: The BoJ is expected to maintain an accommodative monetary policy, with the key rate remaining in negative territory. This stance contrasts with the policy trajectory of the US Federal Reserve, further influencing the USD/JPY exchange rate.

• Impact of American rate cuts on repatriation flows: BofA analysts say that even if the Fed were to cut rates, which would generally support risky assets, it is unlikely to trigger significant repatriation flows to Japan. This is due to the nature of equity investments driving capital outflows, with Japanese investments in US equities likely to remain in place despite possible rate cuts.

Conclusion: The upward revision to BofA’s USD/JPY forecast reflects a combination of structural and political factors that are expected to weaken the Japanese yen against the US dollar over the coming years.

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