BofA Projects 6% Yen Surge by End of 2026 on US-Japan Joint Intervention

"Yen-Dollar Rate Could Drop from 158 to 149 by Year-End"

"US-Japan Coordination Raises Likelihood of BOJ Rate Hike," Analysts Say

There are projections that if the joint foreign exchange market intervention by the US and Japanese governments coincides with an additional interest rate hike by the Bank of Japan (BOJ), the yen-dollar exchange rate could fall below 150 yen by the end of this year.

Bank of America (BofA) stated in a report on August 5 (local time) that it expects the exchange rate to drop from the current level of about 158 yen per dollar to as low as 149 yen. The previous forecast was 152 yen.

BofA analysts noted that, regarding the joint yen-buying intervention by the US and Japanese financial authorities on July 31 for the first time in 15 years, "The need to successfully defend the yen has become even more critical as a result of this intervention." They added, "To achieve this, not only foreign exchange market intervention but also a faster interest rate hike by the BOJ is necessary." Furthermore, they mentioned that, "If the BOJ raises rates in September instead of waiting until October, it would demonstrate to the market its intention to proactively address inflation risks."

Satsuki Katayama, Japan's Minister of Finance, explained to the media on the 3rd about the joint US-Japan foreign exchange intervention measures at the Ministry of Finance in Tokyo. Tokyo, Japan - Reuters Yonhap News Agency.

BofA particularly highlighted the significance of the US participating in the joint intervention this time. If Japan were to defend the yen alone, it would have to use its own foreign reserves to buy yen, making it difficult to sustain such measures. However, with the US participating in the intervention, BofA assessed that the market now perceives Japan's foreign exchange reserves as no longer a limitation to supporting the yen. Additionally, BofA pointed out that, in light of this US-Japan joint intervention, there is an increasing likelihood that Japan will pursue broader policy responses beyond foreign exchange market intervention, such as additional interest rate hikes, thus supporting a stronger yen in the long term.

The yen, amid a significant interest rate gap between the US and Japan, fell to around 164 yen per dollar last month, its lowest level in about 40 years. In response, from July 31 to August 3, the Japanese government and BOJ engaged in yen-buying and dollar-selling operations for three consecutive trading days. The US also participated, involving funds totaling approximately 12-13 trillion yen. This joint intervention was the first between the two countries in 15 years since immediately after the 2011 Great East Japan Earthquake, and it was the first joint effort to curb yen weakness in about 28 years since the 1998 financial crisis.

However, Linto Maruyama, chief analyst at SMBC Nikko Securities, pointed out to the Nikkei newspaper that, "A joint intervention can strengthen the yen in the short term, but unless fundamental factors such as the US-Japan interest rate gap change, it will be difficult to reverse the weak yen trend."

Hiroshi Suzuki, chief analyst at Sumitomo Mitsui Banking Corporation, also noted, "This joint intervention is a historically rare case that shows the US is sharing Japan's exchange rate concerns." However, he assessed, "Since the US dollar's strong trend has not changed, it is difficult to say the weak yen trend itself has turned around."

This content was produced with the assistance of AI translation services.