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Bank of America Global Research discusses the JPY outlook and sees a scope for a revival of the JPY-carry trade
(1) As the Fed is expected to finish rate hikes in May while the ECB is expected to continue rate hikes into the fall, the global monetary policy cycle appears to enter a phase similar to 2H06-1H07 when the yen-carry trade accelerated.
(2) However, yen-carry trade has not been built up yet. The key domestic reason is the uncertainty around the BOJ's policy shift under the new governor. The BoJ's policy tweak on YCC (yield curve control) with dovish forward guidance on the front end could be seen as a greenlight for yen-carry trade," BofA notes.
(3) The market has cut pricing for the BoJ's policy shift in April. Policy changes in the April MPM could surprise the market timing-rise and lead to a sharper JPY rally, but the rally should be sold unless the BoJ turns hawkish on the front end," BofA adds.
