Bank of America sees yen jumping 6% by end of 2026

According to revised expectations from Bank of America, the Japanese yen is projected to strengthen by around 6% against the U.S. dollar by the end of 2026. This anticipated strengthening could see the yen rise from approximately ¥158 to ¥149 per dollar. The forecasted increase is attributed to coordinated currency intervention by both the U.S. and Japanese governments, as well as the likelihood of a Bank of Japan rate increase in the coming months, according to analysts Shusuke Yamada, Izumi Devalier, and Tomonobu Yamashita.

In their recent report, the bank acknowledged that the intervention has heightened the importance of successfully defending the yen, which may necessitate further macroeconomic policies, particularly more aggressive rate hikes by the Bank of Japan. They emphasized that intervention in September, rather than waiting until October, would enable the Bank of Japan to showcase its commitment to addressing upside inflation risks.

The yen's earlier slide to a four-decade low near ¥164 was primarily driven by the significant disparity between U.S. and Japanese interest rates. The joint intervention effort pushed the yen to nearly ¥155, contributing to a four-day rally before the currency experienced a slight setback. Both governments reaffirmed their readiness to collaborate again in case of further intervention, a move significant according to Bank of America analysts, as the size of foreign exchange reserves typically serves as the upper limit for unilateral intervention. However, the U.S. participation effectively removed this constraint.

Moreover, Bank of America raised its forecast for the yen this quarter to ¥153 per dollar, up from ¥154. The analysts noted that the coordination between the U.S. and Japan suggests a shared goal, likely the long-term stability of the currency. They suggested that Japan might implement broader policy measures beyond FX intervention to support the yen over the longer term.