Synopsis:

BofA reaffirms its structural bearish stance on the JPY, raising its USD/JPY year-end target to 165 (from 160 prior, vs. Bloomberg median of 148). The bank also sees JGB yields rising to 1.65%, driven by a more hawkish BoJ outlook.

Key Points:

1️⃣ Weaker Yen, Higher Yields

• BofA remains structurally bearish on JPY and JGBs as Japanese monetary policy continues to lag global tightening trends.
• USD/JPY target raised to 165 (from 160), with JGB 10yr yield forecast at 1.65% (vs. 1.4% prior).

2️⃣ BoJ Outlook Revised to More Hawkish Terminal Rate

• BofA now sees the BoJ’s terminal rate reaching 1.5% (vs. 1.0% prior).
• This suggests a more aggressive BoJ tightening path than before, though still insufficient to counter USD/JPY upside momentum.

3️⃣ JPY Weakness Likely to Persist Despite BoJ Tightening

• Yield differentials remain highly unfavorable for JPY as Fed policy remains relatively restrictive.
• Stronger global demand for USD assets, coupled with Japan's dovish policy, reinforces sustained JPY weakness.

Conclusion:

BofA remains firmly bearish on JPY and sees USD/JPY rising to 165 by year-end, supported by higher US-Japan yield differentials and a structurally weak yen. While the BoJ may hike further, it is unlikely to be aggressive enough to stem JPY depreciation.