Bearish to 159! Ahead of Friday's Bank of Japan decision, Wall Street strategists collectively bet on a weaker yen

According to Golden Ten Data, strategists including Wells Fargo and Citigroup expect the yen to weaken, predicting that the Bank of Japan will disappoint investors with a less hawkish stance than the market anticipates after Friday’s meeting.

The strategists are bearish on the yen, with Citigroup believing that the yen may fall to 159 against the US dollar in the coming weeks. As of press time, the yen was little changed against the dollar, trading at 156.02.

Swap traders have almost fully priced in a 25 basis point rate hike from the Bank of Japan on Friday. The market is now focused more on the remarks from Bank of Japan Governor Kazuo Ueda after the decision, hoping to find clues about the central bank’s future policy path, with further rate hikes expected by the end of the year.

Wells Fargo strategist Chidu Narayanan wrote in a report on Thursday, "The Bank of Japan faces a high bar to meet these market expectations, and it’s even harder to outperform them," adding, "The risks are tilted toward a result that is more dovish than market pricing."

Yen faces reversal risk after rebound driven by intervention

Previously, following the US Federal Reserve’s first rate hike in three years on Wednesday, and Chair Powell’s indication that the central bank would continue to hike in its fight against inflation, the yen had already weakened.

The current reversal in the yen comes after a sharp rally earlier this month, when it reached its strongest level since mid-February and surpassed the high reached after the rare joint intervention to buy yen by Japanese and US authorities in late July. In recent years, the yen has remained under pressure mainly due to the significant interest rate differentials with other major economies.

Citigroup strategist Daniel Tobon said in a report on Thursday that although the yen faces near-term downside risk if the Bank of Japan fails to meet market expectations, he believes recent policy moves are part of a broader "paradigm shift" that may strengthen the yen in the long run.

"Our truly significant concerns about the yen are slowly changing in the right direction," Tobon said.

Chris Turner, Head of G10 FX Strategy at ING Group, expects that if the Bank of Japan fails to signal further rate hikes, the yen could depreciate to 157 or 158.

Elsewhere, Georgette Boele, Senior FX Strategist at ABN AMRO, expects the yen to strengthen in the second half of 2027, when she anticipates the Federal Reserve and the European Central Bank will cut rates. However, for now, she expects the yen to hover around 154 against the US dollar until the first quarter of 2027.

She said, "We expect higher energy prices will temporarily interrupt the yen’s recovery."