Bank of America Securities has revised its outlook on the Japanese yen, moving it from bearish to neutral and projecting a significant appreciation against the US dollar by the end of 2026. Strategist Shusuke Yamada lowered his end-2026 forecast for the dollar-yen rate to 152 from 157, indicating a potential 6% gain for the yen. This shift is attributed to improving structural flow dynamics for the yen and vulnerabilities facing other major currencies.
The bank identified three key catalysts that could turn it outright bullish on the yen: a hawkish rate hike by the Bank of Japan (BoJ), a normalization of the Strait of Hormuz situation, and a re-evaluation of hedging strategies by investors. A hawkish BoJ hike could trigger the unwinding of speculative yen short positions, which are currently stretched, and encourage a reassessment of hedging, leading to yen buying. The BoJ's policy meeting next week is therefore a critical event to watch.
While recent US-Japan coordinated interventions temporarily halted the yen's depreciation, major investment banks remain cautious. The prevailing view is that a sustained strengthening trend for the yen requires more fundamental shifts, such as an accelerated BoJ rate-hiking cycle, a return of overseas investment funds to Japan, and improved fiscal health. Most investment banks maintain near-term forecasts for the dollar-yen in the low 160-yen range, with 155 yen seen as near-term support. Bank of America, along with Nomura, holds a more optimistic view with forecasts of 156 yen and 158 yen, respectively.
Despite the short-term impact of interventions, the yen's rally is seen as potentially fading if the Federal Reserve continues with interest-rate hikes, which would support the dollar. However, Bank of America's analysis suggests that structural factors, combined with potential BoJ actions, could overcome these headwinds and drive a more significant long-term appreciation for the Japanese currency.
