February 25, 2025 at 08:39PM
BofA remains structurally bearish on JPY, raising their USD/JPY forecast to 165 (previously 160) and expecting the 10-year JGB yield to reach 1.65%. They see continued JPY weakness driven by accelerating Japanese outward investment, as households shift wealth away from yen deposits into foreign assets amid persistent inflation.
Key Points:
1️⃣ Higher USD/JPY Forecast 📈
New target: 165 by year-end (previously 160).
Consensus remains lower at 148 (Bloomberg median).
JGB yields forecasted at 1.65% (up from 1.4%).
2️⃣ BoJ Terminal Rate Revised Upwards 🏦
New BoJ terminal rate forecast: 1.5% (previously 1.0%).
However, still distant from positive real interest rates.
3️⃣ Accelerating Outward Investment 🌏
NISA scheme (2024 upgrade) has accelerated household shifts into foreign assets.
Japanese investors seek protection from rising domestic inflation.
Toshins (Japanese mutual funds) inflows into foreign assets indicate continued rebalancing away from JPY.
Conclusion:
BofA reinforces its structurally bearish JPY stance, forecasting USD/JPY at 165 by year-end. Japanese households’ portfolio rebalancing and lack of positive real rates will likely drive continued JPY weakness.
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This article was written by Adam Button at www.forexlive.com.
