UBS has updated its forecast for the USD/JPY exchange rate, signaling potential fluctuations over the next year.
The bank now anticipates the currency pair reaching 155 by December 2024, then 152 in March 2025, followed by 150 in June, and 147 by September. By the close of 2025, UBS expects USD/JPY to reach 145, revising its previous projections of 147, 143, 140, and 138 for the same period.
UBS noted that a short-term surge to 158-160 could occur if U.S. 10-year yields increase by another 30-40 basis points, potentially reaching around 4.8%.
Based on a three-year sensitivity analysis, UBS found that a 10 basis point widening in the U.S.-Japan 10-year yield differential generally leads to a one-yen increase in the USD/JPY rate. Should U.S. yields hit 4.8%, UBS suggests the exchange rate could momentarily reach 160, although they view this level as “unsustainable” and likely to trigger intervention by Japan, similar to events seen earlier in 2024.
Looking ahead to 2025, UBS foresees downward pressure on the USD/JPY due to several factors, including an expected rate-cutting cycle by the U.S. Federal Reserve, which could drive U.S. yields lower.
UBS analysts believe that current USD/JPY levels are somewhat elevated compared to yield differentials and estimate a natural trend towards 145-146. Additionally, potential trade tensions and the possibility of a U.S. administration aiming for a stronger yen could further reinforce this trend.
UBS suggests that investors consider any near-term spike towards 160 as a chance to “tactically sell USD/JPY,” projecting that broader trends will likely lead the currency pair to finish 2025 around 145.
