Synopsis:

As the USD/JPY approaches the critical 155 level, Bank of America anticipates a potential rally induced by the upcoming Bank of Japan (BoJ) monetary policy meeting. This movement might prompt the Ministry of Finance (MoF) to intervene in the foreign exchange market to stabilize the yen.

Key Points:

• BoJ Monetary Policy Meeting: The BoJ's upcoming meeting on April 25-26 is seen as a pivotal event that could influence the trajectory of the USD/JPY. The meeting arrives at a time when USD/JPY is flirting with the 155 mark, which is regarded by many as a threshold for potential intervention by Japan's MoF.

• Market Expectations: There is widespread anticipation that the BoJ might need to adjust its communication or policy stance due to the weakening yen and its impact on inflation. However, BofA analysts believe that for the BoJ to significantly bolster the yen, it would need to signal a shift towards a less accommodative policy stance and a higher-than-expected terminal rate—outcomes that are considered unlikely at this juncture.

• Potential for FX Intervention: The market remains bullish on USD/JPY, closely watching for any intervention by the MoF around the 155 level. If the MoF does not intervene when USD/JPY reaches or exceeds 155, there could be rapid market movements towards 160, testing the MoF's resolve at higher levels.

• MoF's Preparedness for Intervention: While the MoF's exact threshold for intervention ('line in the sand') has been a subject of speculation, recent currency movements suggest that it could be higher than previously anticipated. Factors that may have previously deterred intervention are now being reassessed, and the MoF might be more prepared to act to curb excessive volatility in the exchange rate.

Conclusion:

The forthcoming BoJ monetary policy meeting is set against a backdrop of significant market anticipation regarding potential interventions in the currency market by Japan's MoF. The possibility of the USD/JPY rallying through the 155 level serves as a focal point for traders and policymakers alike. BofA's analysis suggests that the meeting could be a catalyst for significant currency movements, with implications for global financial markets.