BofA Sees Dollar-Yen at 149 by Year-End on Prospect of US-Japan Joint Intervention

Bank of America lowered its year-end forecast for the dollar-yen exchange rate, citing the prospect of joint US-Japan foreign-exchange intervention and the possibility of another Bank of Japan rate hike.

Bloomberg reported on August 5 that BofA expects the dollar-yen rate to fall to 149 by year-end, compared with its previous forecast of 152. The pair is currently trading at around 158.

BofA said joint yen-buying intervention by the US and Japanese governments, along with an additional BOJ rate increase, would support further yen strength. A move in September rather than October would send a stronger signal to markets that the BOJ is committed to tackling inflation.

"The odds of successfully defending the yen have increased with this joint intervention, and that effort will require not only foreign-exchange intervention but also macroeconomic policy measures such as interest-rate increases," BofA said.

US participation in the intervention has also effectively removed a previous constraint, under which the size of Japan's foreign-exchange reserves determined the limit of any market operation, the bank said.

BofA also revised its third-quarter forecast for dollar-yen to 153 from 154. It added that US-Japan coordination appears to reflect a shared goal of the yen's long-term stability, beyond short-term currency defense.