Bank of America: The Bank of Japan should raise interest rates to stabilize the yen and may hike rates quarterly until July 2027 to reach 2%

(1) Members of the Bank of America Global Research team pointed out that for foreign exchange interventions to have a lasting effect and achieve long-term stability of the yen, Japan ultimately needs to adjust its policy mix. The most likely path is to implement monetary tightening against a backdrop of fiscal expansion, with the Bank of Japan taking the lead through interest rate hikes. (2) The institution expects the Bank of Japan may proceed with rate hikes on a quarterly basis and conclude this tightening cycle in July 2027 after raising the terminal rate to 2%. (3) Bank of America maintains its forecast for the USD/JPY exchange rate at 149 by the end of 2026.