By Investing.com — UBS has raised its forecast for the USD/JPY in a note Thursday, expecting significant fluctuations in the exchange rate over the coming year.
The bank now projects the currency pair to reach 155 by December 2024, followed by 152 in March 2025, 150 in June, and 147 in September.
By year-end 2025, UBS targets 145, a revision from its earlier predictions of 147, 143, 140, and 138, respectively.
According to UBS, a near-term surge to 158-160 remains possible, especially if U.S. 10-year yields rise another 30-40 basis points, potentially hitting 4.8%.
“Based on sensitivity analysis over the past three years, a 10bp widening of the US-Japan 10-year yield differential coincides with a one-yen rise in the USDJPY exchange rate,” UBS explained.
If U.S. bond yields indeed spike to 4.8%, the bank says USD/JPY could temporarily reach 160, though they view this level as “unsustainable” and likely to invite Japanese intervention, as observed during similar peaks earlier in 2024.
UBS analysts believe the USD/JPY will face downward pressure in 2025, driven by several factors. A key factor is the anticipated Fed rate-cutting cycle, which UBS expects will lead to lower U.S. yields.
“We think current USDJPY levels are higher than justified by yield differentials,” UBS notes, estimating that the currency pair should trend toward 145-146.
Additionally, trade tensions and a potential Trump-led administration’s focus on a stronger yen may reinforce this trend.
For investors, UBS suggests that any near-term spike toward 160 could be an opportunity to “tactically sell USDJPY.” Over the long term, UBS sees multiple forces supporting a downtrend, with USD/JPY likely to end 2025 at 145.