“If U.S. rates fully normalize over a three-year period (fed funds near 4 percent by early 2018) and Bank of Japan rates still are at zero, you could perhaps see dollar-yen at 140,” Ruskin added.
Moreover, Investors could magnify the sell-off in yen and demand in the U.S. dollar as more people capitalize on the carry-trade – investors purchase higher-yielding currencies with higher interest rates, like the dollar, by selling lower-yielding currencies, like the yen. Kathy Lien, longtime forex strategist who started BK Asset Management, argues that the environment is “the perfect backdrop for carry trades to return.”
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Max Chen contributed to this article.