Bank Of America Predicts Yen To Decline By Year-End

According to Odaily, Bank of America strategists maintain their forecast that the Japanese yen will resume its decline by the end of the year, expecting the yen to fall below 150 against the US dollar. Shusuke Yamada, the bank's chief Japan foreign exchange and rates strategist, stated in a report that the yen might resume its downward trend because the market has overestimated the potential rate cuts by the Federal Reserve and exaggerated the prospects of capital returning to Japan due to a narrowing dollar/yen interest rate differential. Currency market pricing indicates that the Federal Reserve is expected to cut rates by more than 100 basis points this year, while Bank of America economists anticipate three rate cuts of 25 basis points each. The bank has slightly revised its year-end dollar/yen exchange rate forecast from 155 to 151. Yamada noted that since the 1990s, Federal Reserve rate cuts have not always been detrimental to the dollar/yen exchange rate. He pointed out that the only significant drop in the dollar/yen occurred during the 2007-2008 Federal Reserve rate cut cycle, when the global financial crisis led to the unwinding of yen carry trades, causing the yen to strengthen significantly. Despite the recent cooling of the US job market, the risks of a sustained balance sheet recession and a hard economic landing in the US remain limited.