USD/JPY has held near 159.00 for a week as traders weigh a tougher intervention threat against unchanged fundamentals. BofA, Goldman Sachs, and JP Morgan disagree sharply on where the pair heads next, with year-end forecasts ranging from 149 to 164.
USD/JPY stalls just below 160
USD/JPY has hovered between 158.50 and 159.50 for the better part of a week, mostly clustering around 159.00. The dollar has shown a more tepid mood to start the new week, but the yen remains under pressure because the fundamental backdrop is unchanged. The main new factor is a more threatening intervention playbook: pushing the pair too close to 160 risks another joint intervention. Even so, the path of least resistance still points toward a softer yen.
BofA turns more cautious on its bullish yen call
BofA previously argued USD/JPY could track back toward 149 by year-end and even revised that year-end forecast to 149 from 152 after the joint US-Japan intervention appeared relatively successful. However, the bank now says the balance of risks is shifting against that view. According to BofA: "our quant signals raise some red flags for near-term JPY strength". The bank pointed to an aggressive mean reversion in JPY skew and option flow moving toward JPY puts against the euro and Australian dollar, along with a technical matrix that has yet to trigger any positioning trend signal.
Goldman sees room for more short-covering
Goldman Sachs takes a different tack, noting that Japan's FX intervention forced the sharpest reduction in tactical JPY carry positions in 15 years, even larger than the unwind after the July 2024 intervention. The bank says more unwinds could follow, and positioning could even flip net long if the macro backdrop turns more supportive of the yen, as it did in July-August 2024. Markets now see a September Bank of Japan hike as roughly 75% likely, and Goldman says a faster pace of rate hikes could keep the yen stronger for longer.
JP Morgan keeps its weak-yen target unchanged
JP Morgan disagrees that BOJ tightening changes the picture. The bank notes that rate hike expectations have risen further out the curve, yet this hasn't translated into yen appreciation — instead, the relationship between BOJ hike expectations and the yen has turned negative. JP Morgan's economists now expect the policy rate to reach 2% by the end of 2027, but say that move is already largely priced in. As a result, the bank keeps its year-end USD/JPY target unchanged at 164.
Source: Investinglive
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