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Investing.com - UBS has maintained its USD/JPY target of 140 by year-end and 136 by June 2026, as the currency pair retreated below 148 after briefly surpassing the key 150 level last week.
The initial surge past 150 resulted from liquidation of short-USD and long-JPY positions after the Federal Reserve signaled little urgency to cut rates while the Bank of Japan indicated no rush to hike rates. A weak U.S. labor market report subsequently strengthened market expectations for a September Fed rate cut, pushing the currency pair back below 148.
The USD faced additional pressure following the dismissal of Bureau of Labor Statistics Commissioner Erika McEntarfer and the resignation of Fed Governor Adriana Kugler, which raised market concerns about U.S. economic data integrity and Federal Reserve independence. On the Japan side, a new U.S.-Japan trade deal is expected to encourage the Bank of Japan to resume rate hikes.
UBS has revised its forecast for the Bank of Japan, now expecting 25 basis point rate hikes in December 2025 and June 2026, earlier than its previous projection for the next hike in the second half of 2026. This outlook supports the bank’s maintained USD/JPY targets.
For Japanese investors, UBS recommends considering certain higher-yielding currencies despite the forecast of yen recovery against the USD, suggesting that AUD, NOK, or SEK long exposure should provide positive total returns versus the JPY over the next 12 months. The bank also sees value in selling upside potential in the JPY against these currencies for yield pickup.
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