Bank of America
FX Outlook 2026: Structural Dollar Headwinds
LIVE5 December 2025USD bearish
Back to CurrenciesBullish
USD/JPY
Yen recovery from extreme undervaluation
BofA Forecast Path
Cross-Firm Forecast Comparison
Key Drivers
BoJ normalization pace
Carry trade dynamics
REER mean reversion
Global rate convergence
MoF intervention
All Firm Targets (Dec '26)
JPMBearish164.00
INGBullish152.00
BARCModerately Bullish149.00
GSBullish148.00
BofABullish147.00
MUFGBullish146.00
DBStrongly Bullish143.00
MSBullish140.00
Key Issues for 2026
1.JPY most undervalued G10 currency on REER
2.BoJ normalization to narrow rate differentials
3.Carry unwind risk is asymmetric and growing
4.MoF intervention zone remains a support
5.Global rate convergence favors JPY recovery
Risk Scenarios
Sharp rally140-145
Carry trade unwind + BoJ aggressive tightening
Base case147-150
Gradual BoJ normalization, moderate carry unwind
Bearish160+
US rates stay high, carry trade resilient
Analysis Summary
JPY is the most undervalued G10 currency. BoJ normalization, carry unwind risk, and narrowing rate differentials should drive recovery. The yen's cheapness on REER terms creates significant mean-reversion potential as global rate differentials compress.
FX BANK FORECAST · COVERAGE
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