Bank of America has judged that yen depreciation versus commodity currencies is likely to be limited given persistently high volatility across foreign exchange markets. The bank's analysis points to a constrained downside for the Japanese currency while noting scenarios that could increase pressure on the yen.
In particular, analysts at the bank flagged that a drop in market volatility combined with sustained high oil prices would heighten downside risks for the yen. That combination, they say, would create a stronger headwind against the currency's value.
The firm recommended AUD/JPY as its favored trade. Within its view on crosses, Bank of America also cited foreign exchange intervention risk as a factor shaping positioning in USD/JPY. The bank suggested that a rate of ¥157 in USD/JPY represents a preferable level at which to sell the Japanese currency, given the potential for policy or market responses around that threshold.
On monetary policy expectations, the bank advised fading market pricing that assumes a Bank of Japan rate hike in April while contrasting that with expectations for a Reserve Bank of Australia move in May. That divergence in anticipated central bank action is presented as a driver of the current pressure on the yen, with commodity-linked currencies showing relative strength against it.
Overall, the bank's guidance ties together three interlocking factors: high FX volatility limiting sustained yen weakness, oil price dynamics that could exacerbate downside for the yen if volatility eases, and intervention risk that affects optimal entry levels in major currency pairs. These considerations underpin its preference for AUD/JPY and its view on USD/JPY at ¥157 as a tactical selling point for the yen.
Impacted sectors - Currency markets and commodity-linked sectors, including energy and exporters/importers sensitive to exchange rate moves. Financial markets and central bank policy interpretation are also implicated.