Bank of America sees USD/JPY at 149 by year-end; CBA forecasts 165 by mid-2027. Carry trades return as BOJ normalization lags. U.S. July jobs data next.
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The yen is testing its recent gains against the dollar as two competing outlooks emerge from major banks. Bank of America sees USD/JPY falling to 149 by year-end, while Commonwealth Bank of Australia forecasts a rally to 165 by the second quarter of 2027. The divergence hinges on how fast each central bank moves.
The dollar has been sliding on easing geopolitical tensions and renewed skepticism about U.S. policy. A Wall Street Journal report that Donald Trump is in regular contact with Kevin Warsh, a potential Fed chair pick, has added to the greenback's woes. If the next Fed chair is seen as too close to the White House, the dollar could face further pressure, traders said.
At the same time, Oman and Iran are close to a deal to reopen the Strait of Hormuz without charging a fee. That would require the U.S. to lift sanctions, which could boost oil supply and lower prices. Lower oil would reduce inflation risks and diminish the case for Fed tightening, giving other currencies room to strengthen against the dollar.
Bank of America argues the Bank of Japan will be forced to accelerate tightening to defend the yen. "A policy of acting in September rather than waiting until October will help strengthen the yen," the bank said. That would push USD/JPY toward 149.
CBA takes the opposite view. The Australian bank expects the BOJ to raise its overnight rate only twice through mid-2027, while the Fed tightens three or four times starting in December. That divergence would drive USD/JPY back to 165.
Carry trades are re-emerging as a headwind for the yen. After coordinated currency intervention, the Bloomberg EM FX Carry Risk Premia Index fell about 1%. In 2024, Japan's forex interventions caused a 4% slump in that index. Carry traders had diversified their portfolios and are now gradually selling the yen again as a funding currency, betting on slow BOJ normalisation.
The fate of USD/JPY rests on central bank policy. The next catalyst is U.S. employment data for July. A strong payrolls number would raise the odds of a Fed rate hike and support the dollar. A weak print would give the yen another leg up, several analysts said.
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