Bank of America believes that 2024 could be a transformative year for the Japanese yen (JPY) with the implementation of the expanded NISA (Nippon Individual Savings Account), a tax-exempt investment account for individuals.
The bank expects this move to widen the retail investor base and increase retail investment volume, possibly leading to a substantial impact over time.
Key Points
1. Expanded NISA: The expanded NISA will come into effect in January 2024, allowing retail investors to invest in domestic and foreign securities and investment funds free of capital gains and dividend tax. Bank of America believes this will broaden the retail investor base and increase their investment volume.
2. Potential for Offshore Asset Investment: Given the declining home bias among retail investors, Bank of America predicts a significant portion of NISA-led investments could flow into offshore assets. Although the direct impact may not be immediate, the indirect influence of a broadened investor base could be substantial over time.
3. Increasing Use of Tsumitate NISA: Since 2021, tsumitate NISA (dollar-cost-average) has been increasingly utilized by retail investors. This investment strategy allows investors to set a dollar-cost-averaging program for mutual funds. Flows through tsumitate NISA are likely less price-sensitive than regular forms of investment.
4. High Global Inflation and Limited Fed Rate Cuts: If global inflation continues to remain high and the scope for Fed rate cuts is limited, households may be urged to diversify away from yen cash and deposits to protect their purchasing power, potentially pressuring JPY.
(bolding above is mine)
This is via the folks at eFX.
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The weekly chart shows the yen has already been pressured:
