Intervention can only achieve so much, however, and strategists at Bank of America Merill Lynch (BofA) recently said in a note that if the fundamentals continue to show such a wide interest-rate divergence, USD/JPY is likely to break higher regardless of the authorities’ attempts to intervene, and potentially make it to 160.
Such a scenario, however, would be dependent on the Fed scraping its plans for cutting interest rates in 2024, something currently not envisaged.
A combination of the BoJ holding back from raising interest rates in 2024 and the Fed delaying its plans to cut rates could continue exerting upside pressure on the pair.
A similar conclusion was reached by analysts at Brown Brothers Harriman (BBH) in a recent note in which they said “It’s only a matter of time before USD/JPY rises”. This, they put down to a combination of the BoJ’s very gradual attempts to raise interest rates and the Fed’s likely delay in making interest rate cuts
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