USD/JPY Breaks Below Key Level as BoJ Tightening Bets Gain Momentum
The USD/JPY exchange rate has broken below BofA's key level of 155, as bets on Bank of Japan tightening and repatriation speculation drive yen buying. The pair fell to 152.89 on Tuesday, extending its September fall by over 4%. BofA had recommended selling USD/JPY at 159.70, targeting a year-end forecast of 149.
The speed of the decline suggests that stop-loss orders and the unwinding of leveraged yen shorts have reinforced the move. The Bank of Japan meets on September 17-18, with markets 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.
The break below 155 has activated the buying response anticipated by BofA, placing the psychological 150 level between spot and the bank's target. The carry-trade unwind is only one part of BofA's case, which also expects faster BoJ tightening and sees scope for Japanese institutions to bring more capital home as domestic bond yields become increasingly attractive.