UBS has lowered its forecasts for the USD/JPY exchange rate, projecting it to reach 145 by the end of both 2025 and 2026. This marks a significant adjustment from the bank’s previous estimates of 157 and 161, respectively.
The revision reflects growing optimism about the Bank of Japan’s ability to implement further rate hikes. UBS economists anticipate a 25-basis-point hike during the central bank’s policy meeting on December 19, a move that has boosted the yen’s performance against the dollar.
“Increased confidence in the BOJ’s capacity to raise rates further has been the main factor driving this shift,” UBS analysts stated.
This outlook aligns with UBS’s broader foreign exchange strategy. The firm also maintains a bearish stance on EUR/JPY, forecasting a decline to 151 by the end of 2025 and further to 145 by the end of 2026.
In the broader G10 currency market, UBS noted recent stability, with the U.S. dollar holding near mid-November highs. This period of calm persisted despite trade-related announcements by President-elect Donald Trump on social media, which markets initially interpreted as negotiation tactics. UBS, however, cautioned that this sentiment might not last.
Meanwhile, political uncertainty in Europe, such as a no-confidence vote against the French government, could place additional pressure on the euro. UBS analysts highlighted the euro’s vulnerability, particularly given the weaker economic growth environment and the European Central Bank’s dovish stance. The bank projects EUR/USD to drop to 1.04 by the end of 2025.
