The yen will strengthen about 6% against the dollar by year-end following coordinated currency intervention, according to revised expectations from Bank of America.
The yen is seen advancing to ¥149 per dollar from about ¥158 now, supported by joint action from the U.S. and Japanese governments and the prospect of a Bank of Japan rate increase in coming months, analysts including Shusuke Yamada, Izumi Devalier and Tomonobu Yamashita wrote Wednesday. The bank previously forecast the yen at ¥152 at year-end.
“The intervention has raised the stakes for a successful defense of the yen, which likely requires follow-through from macroeconomic policies: specifically, faster rate hikes,” they wrote Wednesday. “Acting in September rather than waiting until October would provide the BOJ with an opportunity to demonstrate its determination to get ahead of upside inflation risks.”
The yen’s earlier slide to a four-decade low near ¥164 was fueled by the wide gap between U.S. and Japanese interest rates. Joint intervention pushed the yen to nearly ¥155 and helped drive a four-session rally before the currency gave back some gains. Both governments signaled they were prepared to act together again if needed after the first coordinated U.S.-Japan yen-buying intervention since 1998.
Bank of America analysts said that signal was significant.
“In the case of unilateral intervention to support a country’s own currency, the size of its foreign exchange reserves could be seen as the upper limit,” they wrote. “With U.S. participation, however, the ultimate constraint on intervention has effectively been removed.”
The bank also raised its yen forecast for this quarter to ¥153 per dollar from ¥154. Coordination between the U.S. and Japan points to a shared objective, likely the currency’s long-term stability, the analysts said.
“A stronger case can be made that Japan will deliver a broader policy response beyond FX intervention to support the yen over the longer term.”
