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Investing.com - Bank of America maintains its forecast for USD/JPY to reach 155 by year-end, emphasizing that U.S. economic data will likely influence the currency pair more than Federal Reserve actions at the September FOMC meeting.
The financial institution suggests that if the Fed’s potential September rate cut is viewed as preemptive or if the cutting cycle is signaled to be shallower than currently priced, it could positively impact USD/JPY by reducing the risk of a hard landing for the U.S. economy.
Bank of America notes that Japan’s structural outflows to foreign markets have continued despite U.S. policy uncertainties, attributing this trend to Japan’s declining population, which constrains domestic labor supply and demand. The recent U.S.-Japan deal could further promote Japanese investment into the United States in coming quarters.
Historical data does not support the conclusion that USD/JPY should decline simply because the Fed enters a rate cut cycle, according to the bank. A Fed rate cut while U.S. economic data remains solid could actually reduce recession risk, which would be the most bearish scenario for USD/JPY.
The research also suggests that currency policy is unlikely to impede USD/JPY’s rise, as Japanese authorities may show greater tolerance for a higher USD/JPY rate given the 15% U.S. tariff rate Japanese exporters would face, while U.S. officials might be less inclined to talk down the dollar if they prioritize lower inflation and interest rates.
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