Bank of America Securities has stated that if the Bank of Japan implements a dovish interest rate increase at this month's meeting, it could trigger an acceleration in yen selling. The firm suggests that if the USD/JPY exchange rate climbs into the 161-165 range, authorities might step in with intervention.

Shusuke Yamada, chief Japan FX and rates strategist at Bank of America Securities, noted in a report that if the yen resumes its depreciation immediately after a BOJ rate hike, authorities may need to intervene to curb the USD/JPY rally. Such action would need to demonstrate firm resolve, potentially resulting in an intervention larger in scale and with a greater price impact than the previous one.

The report also indicated that if the guidance on the future interest rate path is perceived as hawkish, the yen could rise, potentially driven by short covering, and may approach levels around 157.

Yamada further explained that the hedging strategies of both domestic and international investors and corporations have been based on expectations of a weak yen and low Japanese interest rates. A hawkish rate hike that alters this fundamental premise could impact these hedging behaviors, potentially leading to a medium-term appreciation of the yen.

The firm's recommendations include taking a short position on the Swiss franc against the yen. It also noted that ahead of the BOJ meeting, the risk-reward ratio appears favorable for taking a long position on the yen.