BofA revised its Japanese yen forecast on the 5th (local time), significantly raising yen value projections following recent joint foreign exchange market intervention by US and Japanese authorities and the Bank of Japan's (BOJ) hawkish moves. The bank lowered its USD/JPY forecast for Q3 this year from 154 yen to 153 yen, and its year-end (Q4) forecast from 152 yen to 149 yen. This implies approximately 6% yen appreciation by year-end compared to the current spot rate of around 158 yen. BofA's revised forecasts diverge sharply from industry consensus of 160 yen for Q3 and 158 yen for Q4, and are stronger than forward market pricing of 157 yen (Q3) and 156 yen (Q4).
BofA Lowers USD/JPY Forecasts to 153 Yen (Q3) and 149 Yen (Q4)
According to a BofA report released on the 5th (local time), the bank adjusted its USD/JPY exchange rate outlook for this year's third quarter from the previous 154 yen to 153 yen, and its year-end (fourth quarter) forecast from 152 yen to 149 yen. BofA stated that "recent foreign exchange market intervention strongly supports a stronger yen outlook," adding that "in the short term, the probability of USD/JPY falling below 155 yen has increased, and the pace of BOJ rate hikes is also expected to accelerate further." BofA's year-end 2027 USD/JPY forecast stands at 145 yen.
JGB Market Reflects Accelerated BOJ Rate Hike Expectations
Regarding the Japanese government bond (JGB) market, BofA assessed that the market is rapidly reflecting the BOJ's accelerated rate hike pace. BofA noted that "following US Treasury Secretary Scott Bessent's expression of support and the joint FX intervention, the market began to reflect a faster rate hike path than the previous 'one hike every six months.'" The bank added that "the 1y1y OIS (overnight indexed swap) trading at around 1.88% suggests the market is re-evaluating the terminal rate of this rate hike cycle to around 2%, which is an appropriate level."
BofA Maintains Caution on September BOJ Rate Hike
BofA maintained a cautious stance on whether a rate hike will occur at the September monetary policy meeting. The bank stated that "unless additional hawkish signals emerge from the summary of opinions or BOJ speeches, it is difficult to consider a rate hike at the September meeting as a foregone conclusion."
FAQ
What did BofA revise in its Japanese yen forecast on the 5th (local time)?
BofA lowered its USD/JPY forecast for Q3 this year from 154 yen to 153 yen, and its year-end (Q4) forecast from 152 yen to 149 yen, following recent joint US-Japan FX intervention and BOJ hawkish moves.
How does BofA's forecast compare to market consensus?
BofA's revised forecasts are significantly more bullish on the yen than industry consensus (Q3: 160 yen, Q4: 158 yen) and forward market pricing (Q3: 157 yen, Q4: 156 yen).
What does the 1y1y OIS rate at 1.88% indicate about BOJ policy expectations?
According to BofA, the 1y1y OIS trading at around 1.88% suggests the market is re-evaluating the terminal rate of the BOJ's rate hike cycle to around 2%, reflecting expectations for a faster pace of rate increases than previously anticipated.
