Bank of America Global Research revises its JPY medium-term view from bearish to neutral and targets USD/JPY at 156 in Q3 and 152 by year-end

"We had been structurally bearish on JPY since 2021, and since 2022 had premised our outlook on a prolonged period of JPY weakness driven by structural outflows. However, there are now signs of an improvement in structural flow dynamics. Moreover, other major currencies face their own risk factors. As a result, the medium-term outlook for JPY has improved," BofA notes.

"We are no longer bearish JPY as structural outflows moderate and hedging trends begin to shift...While USD/JPY can remain elevated near term, we prefer expressing the view through short CHF/JPY as Japanese flow dynamics gradually improve. An improving demand-supply balance for yen is the medium-term thesis but Japan's policy mix is key too. In our view, we are sufficiently close to pain thresholds in USD/JPY and JGB yields for Japan policymakers to pivot toward a more prudent fiscal/monetary stance. Apart from the BoJ continuing to hike, a key fiscal litmus test will be Japan's "Basic Policy" framework," BofA adds.