UBS has adjusted its forecast for the USD/JPY exchange rate due to expected market volatility.
The bank now predicts that the currency pair will reach 155 by December 2024, followed by a gradual decline to 152 in March 2025, 150 in June, and 147 by September. By the end of 2025, UBS has set a target of 145.
The potential for a near-term surge in the USD/JPY to levels between 158 and 160 is considered plausible if U.S. 10-year yields increase. UBS notes that there is a correlation between the widening of the U.S.-Japan 10-year yield differential and movements in the USD/JPY exchange rate. However, UBS analysts caution that any spike to 160 may be unsustainable and could lead to intervention from Japanese authorities.
The bank's outlook for 2025 suggests that the USD/JPY will face downward pressure due to factors such as the anticipated Federal Reserve rate-cutting cycle, ongoing trade tensions, and the potential for a stronger yen under a Trump-led administration. UBS advises investors to consider selling USD/JPY during any near-term spike toward 160, as the bank believes that multiple forces will support a downtrend in the exchange rate.