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Investing.com - UBS has revised its USD/JPY exchange rate forecasts upward while still projecting an overall downward trajectory for the currency pair through 2026.
The Swiss banking giant now expects USD/JPY to reach 142 by December 2025, up from its previous forecast of 140, according to a research note released this week. UBS also adjusted its March 2026 target to 140 from 138 and its June 2026 target to 138 from 136, while introducing a new September 2026 target of 136.
UBS attributes the projected yen appreciation to continuing monetary policy divergence, with the Federal Reserve expected to cut rates while the Bank of Japan pursues rate hikes. However, the bank notes that net-long JPY positioning and favorable yield-carry conditions may limit the extent of yen strength.
The current USD/JPY level of 147 remains above where interest rate differentials suggest it should trade, according to UBS analysts, who believe rate differentials point to an exchange rate closer to 140. This gap indicates further room for the yen to strengthen against the dollar.
UBS identifies potential political changes in Japan as a key risk to its outlook, specifically noting that if Sanae Takaichi, who favors dovish monetary policy, were to succeed current Prime Minister Shigeru Ishiba, it could lead to yen weakness and disrupt the forecasted trajectory.
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