USD/JPY set to hit 147 by September – BofA

FXStreet Insights Team FXStreet

Economists at the Bank of America expect to see a high USD/JPY pair due to carry-trade.

Potential Correction in 2024

We expect the USD/JPY pair to remain high due to carry-trade, forecasting it to reach 147 by September.

We align with the consensus view that the USD/JPY may undergo a correction in 2024 due to policy convergence. We anticipate the Federal Reserve to begin cutting rates in May 2024, while the Bank of Japan (BoJ) is expected to withdraw from negative interest rate policy around mid-2024.

Despite the expected policy convergence, we warn that there is a downside risk for the Yen in 2024. The market is currently pricing in approximately a 170 bps rate cut from the Fed's peak policy rate in fall 2023 to the end of 2024. There is considerable uncertainty about whether US inflation will slow down enough to enable the Fed to start reducing rates.

If the Fed does not cut rates in 2024, the Yen’s weakness could enter a third phase. The first phase is characterized by policy divergence in 2022, the second phase by carry trade in 2023, and the third phase by Japanese households rebalancing offshore assets to preserve their purchasing power in 2024.

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold holds above $4,000/three-month low as Fed hike bets and firm USD cap upside

Gold struggles to capitalize on its modest recovery from levels below the $4,000 psychological mark, or a three-month low set earlier this Friday, and retains a bearish tone through the first half of the European session. Federal Reserve officials recently signaled there is no urgency to raise interest rates. Traders, however, are still pricing in around an 80% chance that the US central bank will raise borrowing costs again at its December policy meeting.

Bitcoin, Ethereum, and Ripple rebound as major support levels cap recent sell-off

Bitcoin, Ethereum and Ripple rebound modestly on Friday after correcting and testing their key support zone the previous day. BTC holds the 50-day EMA, ETH finds support around the 100-day EMA, while XRP holds the horizontal floor near $1.300. The price action of these top three cryptocurrencies suggests a recovery if this critical support zone holds; a decisive close below these levels suggests a deeper correction.

The week ahead – UK budget, Shell, BP and HSBC and NatWest results

Financial markets have undergone another turbulent week with concerns about public sector debt levels, the impact of energy policy and higher oil and gas prices, and what events in France might mean for the UK economy going forward.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.