UBS has adjusted its forecasts for the USDJPY exchange rate, revising its expectations for the end of 2025 and 2026 to 145, down from previous estimates of 157 and 161. This adjustment reflects a growing confidence in the Bank of Japan's ability to implement further rate hikes, with UBS economists anticipating a 25 basis-point increase during the upcoming policy meeting on December 19.
The revised outlook for USDJPY aligns with UBS's broader foreign exchange trading views, as the firm maintains a short position on the dollar and projects a decline to 151 by the end of 2025 and further down to 145 by the end of 2026. UBS analysts have highlighted the rising confidence in the BOJ's ability to raise rates as a crucial factor driving this adjustment, coinciding with the yen's recent outperformance against the dollar.
In the broader G10 foreign exchange market, UBS has observed relative stability in recent weeks, with the USD trading near mid-November highs despite political turbulence. UBS analysts caution that this sentiment may be short-lived and advise market participants to remain vigilant as developments unfold.
Political uncertainty in Europe, particularly a no-confidence vote against the French government, could exert downward pressure on the euro. UBS analysts have indicated that the potential for a more significant and sustained impact on the eurozone economy is greater now than it was in June, given the current backdrop of weaker growth and dovish repricing by the European Central Bank. UBS's end-2025 target for the euro to reach 1.04 against the dollar reflects the challenges facing the eurozone amid ongoing political and economic headwinds.
As the financial markets navigate these complexities, the interplay between currency movements and geopolitical developments will be critical, and investors are advised to closely monitor central bank policies and political events that could influence market sentiment and currency valuations in the near term.