Investing.com — The greenback has dominated the yen this 12 months because the Federal Reserve and Financial institution of Japan implement opposing financial coverage measures, and now the danger is rising for the to overshoot earlier than an anticipated correction within the first quarter of subsequent 12 months, strategists from BofA stated in a current word.

“We’re structurally bullish on USD/JPY however have anticipated a correction in 1Q25 on elevated US coverage uncertainties,” BofA famous, although flagged the danger of the USD/JPY overshooting as bets on a Financial institution of Japan, or BoJ, fee hike fade.

USD/JPY rose above 153 final week because the market priced out expectations for a BoJ fee hike at its December assembly, the strategist stated. 

This pricing dropped from over 60% on the finish of November to simply 16% as of now, following media reviews suggesting that the BoJ is inclined to carry charges unchanged on account of uncertainties round US financial coverage and wage tendencies.

Falling odds of a BoJ fee hike will increase the danger of USD/JPY overshooting, doubtlessly triggering overseas trade intervention by Japan’s Ministry of Finance earlier than the BoJ’s January financial coverage assembly. the strategists stated.

If USD/JPY trades near 155 earlier than the BoJ’s December assembly, the shortage of a fee hike might affect market perceptions relating to Japan’s foreign money coverage. “The FX market would interpret current media reviews because the BoJ being high-quality with USD/JPY someplace under 155,” they added.

Within the lead as much as the BoJ December assembly on