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Investing.com - Bank of America has highlighted increasing risks to Japanese yen assets following two significant developments over the past week, according to a research note published Tuesday.
Early election polls have revealed that the LDP-Komeito coalition’s ability to maintain its majority in the July 20 Upper House election is less certain than markets previously assumed. BofA analysts had previously warned that an LDP loss would heighten both fiscal and political risks in Japan.
The United States plans to increase tariffs on Japanese goods to 25% starting August 1, while sparing the European Union from similar measures. BofA suggests these tariffs could create pressure for additional fiscal spending in Japan and potentially make the Bank of Japan more tolerant of a weaker yen to offset tariff impacts.
The investment bank maintains its preference for USD/JPY and EUR/JPY positions, noting that non-commercial traders at CME remain net long on the yen. BofA also expressed bullish sentiment on AUD/JPY following the Reserve Bank of Australia’s unexpected decision to hold rates.
BofA analysts pointed out that Australia does not face direct threats from US tariffs, and accelerating Chinese economic growth continues to provide support for the Australian dollar.
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