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Bank of America Global Research discusses the JPY outlook and sees scope for a revival of the JPY carry trade
(1) As the Fed is expected to finish raising rates in May while the European Central Bank is expected to continue raising rates in the fall, the global monetary policy cycle appears to be entering a phase similar to what happened on 2H06-1H07 when carry trade accelerated yen.
(ii) However, the yen carry trade has not yet been built. The main domestic reason is uncertainty about the Bank of Japan’s policy shift under the new ruler. Adjusting the Bank of Japan’s policy on YCC (yield curve control) with dovish forward guidance may be seen as a green light for trading the Japanese yen,” Bank of America notes.
(3) the market cut pricing of the Bank of Japan’s policy change in April. MPM policy changes for April may surprise market timing and lead to a sharp rally in the Japanese yen, but the rally should be sold unless the Bank of Japan finally tightens,” BofA adds.