Investors rush to update yen playbook after BOJ policy shift

Bloomberg

Investors are betting the yen may rise as much as another 10% after the Bank of Japan’s (BOJ) unexpected policy shift fueled speculation it is finally abandoning its ultra-dovish monetary settings.
The currency may appreciate to 120 per dollar or stronger due to its inexpensive valuations, according to Generali Investments, while Union Investment Privatfonds GmbH predicts a short-run gain to about 125. Societe Generale SA forecasts the BOJ decision will trigger a hedging wave from overseas funds that may propel the currency higher over the next month.
The yen surged as much as 4.8% after the BOJ blindsided the market by raising its cap on 10-year bond yields to 0.5% from 0.25%. The rally came after the currency had already risen from a more than three-decade low in October as the market trimmed bets on Federal Reserve interest-rate hikes.
“The yen remains fundamentally very cheap,” said Thomas Hempell, head of macro and market research at Generali Investments. Dollar-yen is “is likely to settle closer to 120 or even lower if we are right in assuming that the Fed will start a sequence of rate cuts in late 2023 and 2024,” he said.
Schroders is buying the yen and shorting Japanese government bonds on expectations it will be a matter of time before the BOJ joins most of its global counterparts in raising rates.