USD/JPY has broken below BofA’s 155 trigger as BoJ tightening bets, repatriation talk and carry liquidation pull its 149 target closer.
The US Dollar to Japanese Yen (USD/JPY) exchange rate plunged to 152.89 on Tuesday, extending its September fall beyond 4% as Bank of Japan tightening bets, repatriation speculation and carry-trade liquidation drove fresh Yen buying.
BofA’s 149 year-end target now sits only 2.5% below the latest low, less than a week after the bank mentioned selling USD/JPY at 159.70.
The move from BofA’s entry level to 152.89 represents a gain of roughly 4.3% for the short position before carry and trading costs.
“We recommend selling USD/JPY at 159.70, targeting 149.0 (our year-end forecast) with a stop loss at 164.0.”
The 155 Trigger Has Already Broken
BofA identified 155 as more than a conventional support level.
“From here, 155 is a key level below which we think domestic yen buying could accelerate.”
That break has now happened decisively, with USD/JPY falling from around 160 at the beginning of September to below 153 during Tuesday’s Asian session.
The speed of the decline suggests that stop-loss orders and the unwinding of leveraged Yen shorts have reinforced the move.
When we examined JPMorgan’s 164 year-end forecast last week, USD/JPY was still holding above the bottom of its 155-165 central range.
The pair has since fallen through that floor, leaving BofA’s bearish call much closer to current market direction.
Policy and Domestic Flows Support the Yen
The carry-trade unwind is only one part of BofA’s case.
The bank also expects faster BoJ tightening and sees scope for Japanese institutions to bring more capital home as domestic bond yields become increasingly attractive.
“Potential rotation from foreign bonds into JGBs among Japanese investors, including pension funds, could support JPY.”
BofA argues that higher Japanese rates would weaken the justification for maintaining large short-Yen positions.
“If the BoJ raises rates at its September meeting and maintains a hawkish communication stance, the rationale for selling the yen would weaken.”
The Bank of Japan meets on September 17-18, with markets now almost fully pricing a 25-basis-point increase to 1.25%.
BofA expects quarterly rate increases to take the policy rate towards 2% by July 2027, while stronger Japanese wage and growth data have added credibility to the tightening outlook.
There are still reversal risks.
A less hawkish BoJ decision or another firm US inflation report could revive demand for the Dollar and slow the move towards 149.
For now, however, the break below 155 has activated the buying response BofA anticipated, placing the psychological 150 level between spot and the bank’s target.
Our currency coverage draws on live market data, official economic releases and published bank research.
