In its latest research report, Bank of America maintains a bearish view on the yen, predicting that the USD/JPY exchange rate will likely remain above 150 before 2026; their baseline scenario is that the rate might climb to around 160 in the first quarter of 2026, and they suggest that if the US economy continues to show resilience, the strength of the US dollar against the yen could persist.
Forecast Path: 150 "Hard to Break," Potential Push to 160 in Q1
The report presents a rhythm more akin to "upside potential, limited downside": Bank of America regards 150 as a crucial support range while viewing around 160 as a peak window point, focusing on the first quarter of 2026.
The Main Factor Pressuring the Yen: Overseas Allocation and Capital Outflow
Bank of America attributes one of the core reasons for the yen's weakness to continuous foreign investment—Japanese companies and individuals prefer directing their funds towards overseas high-yield assets, causing structural pressure on the yen due to capital outflow.
This assessment aligns with market discussions about the challenge of "fund repatriation." Reuters previously analyzed that Japan still holds a large amount of overseas securities assets, and in a context of low real interest rates, bond market volatility, and cautious policy, the motivation for capital repatriation is insufficient, suggesting a more enduring preference for overseas allocation.
Policy and Bond Market: Relatively Slow Rate Hikes, Fiscal Concerns Affecting Yen Sentiment
On the monetary policy front, Bank of America believes that the Bank of Japan's policy rate remains low relative to inflation and expects a low probability of another rate hike before April, implying that "policy still lags behind."
Meanwhile, the weak performance of Japanese government bonds at the beginning of the year is interpreted by Bank of America as a reflection of fiscal worries, and if long-term interest rate volatility intensifies, it could continue to influence yen pricing in the coming months.
