Stay Long Yen Amid Rising Rates, Boosting Growth – BCA By Investing.com

Investing.com– BCA Research said bets on a stronger Japanese yen are becoming entrenched amid attractive local asset valuations, the prospect of higher interest rate hikes and an improving Japanese economy.

The yen has seen a spectacular recovery over the past two months as a weakened Bank of Japan, a weaker dollar and an ongoing exchange of trade pushed the currency to 2024 highs. The pair has fallen as low as ¥139 in recent weeks .

BCA Research said in a recent note that the yen was a “conviction” buy and that interest rates and global economic conditions could favor the currency in the coming months.

The BCA expects the BOJ this week. But a “dovish hold” is an opportunity to accumulate more yen, while an unexpected rate hike is set to boost the currency further.

The research firm said the Japanese economy remained resilient, with local wage increases helping to boost private consumption.

With the Federal Reserve beginning an easing cycle and with the BOJ likely to raise interest rates further, BCA sees interest rate differentials continuing to shift in favor of the yen over the long term, even more so if the global economy enters in a recession.

The BCA expects Japanese inflation to rise further in the coming months, tying in with the BOJ’s forecasts and giving the central bank more room to raise interest rates. The central bank has raised interest rates twice so far this year, ending years of easy monetary policy on expectations of a pick-up in private consumption and inflation.

While the BOJ is expected to keep rates on hold in the near term, especially with a change in Japanese government leadership, it is still expected to continue raising rates through late 2024 and into 2025. The BCA said an interest rate hike ” it will not hurt Japan”.

However, on Japanese equities, the BCA was less enthusiastic, rating them as “structurally neutral”. The firm cited the strength of the yen as a headwind and saw no immediate positive developments in ongoing corporate governance and structural reforms.