UBS Expects Yen Weakness, Raises Year-End USD/JPY Forecast to 158

Deep News12-04

UBS strategists noted that the yen strengthened this week following remarks by Bank of Japan Governor Kazuo Ueda, but this raised questions about what might happen if the central bank fails to raise rates later this month. Seizing the opportunity, UBS revised its USD/JPY forecast upward.

Strategists, including Shahab Jalinoos, stated in the report, "The bare minimum needed to support the yen now is a dovish rate hike, while a genuine boost would likely require both a rate increase and a clear commitment to further hikes in the future."

Japan's foreign exchange policy appears more likely to remain oriented toward currency weakness, with USD/JPY potentially testing 160 in 2026 to assess intervention thresholds.

UBS raised its USD/JPY year-end 2025 forecast from 152 to 158 and adjusted its Q1 2026 forecast from 147 to 155.

Key downside risks include either an unexpectedly hawkish BoJ policy or a sharp slowdown in U.S. growth or equity market declines.

Conversely, if fiscal concerns trigger vulnerabilities in Japan’s bond market or signs of domestic capital flight emerge, USD/JPY could easily test 170 without active FX intervention.

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