UBS raised its forecast for the USD/JPY exchange rate in a note on Thursday, anticipating significant fluctuations in the coming year. The bank now projects the currency pair to reach 155 by December 2024, then ease to 152 by March 2025, 150 by June, and 147 by September. By the end of 2025, UBS targets a rate of 145, revising its previous estimates of 147, 143, 140, and 138.
According to UBS, a short-term surge to 158-160 remains possible, especially if U.S. 10-year Treasury yields increase by another 30-40 basis points, potentially reaching 4.8%. The bank’s analysis indicates that, based on historical trends over the past three years, a 10-basis point widening in the U.S.-Japan 10-year yield differential typically corresponds to a one-yen increase in the USD/JPY rate.
UBS suggests that if U.S. bond yields rise to 4.8%, the USD/JPY could temporarily spike to 160, though this level is seen as “unsustainable” and likely to prompt intervention from Japanese authorities, as observed during similar peaks earlier in 2024.
Looking ahead to 2025, UBS analysts foresee downward pressure on the USD/JPY rate due to several factors, primarily the anticipated Fed rate-cutting cycle, which they expect to lead to lower U.S. yields. UBS believes the current USD/JPY levels are higher than justified by existing yield differentials and estimates the rate should trend toward 145-146.
Further, trade tensions and potential policies under a Trump-led administration focusing on a stronger yen could reinforce this trend. For investors, UBS suggests any near-term spikes toward 160 could be an opportunity to “tactically sell USD/JPY.” Over the longer term, multiple factors are expected to support a gradual downtrend, with the pair likely to close 2025 at 145.
