UBS Raises USD/JPY Forecast: Oil Prices and BoJ Caution Trigger Yen Weakness - Dailyhunt

What the desk is arguing

UBS raises its USD/JPY forecast, attributing yen weakness to elevated oil prices and the Bank of Japan's cautious policy stance. The bank argues that persistent commodity price pressures and a patient BoJ will keep the yen under pressure, pushing the pair higher in the near term.

Supporting this view, oil prices remain elevated, adding to Japan's import costs and widening the trade deficit. Coupled with the BoJ's gradual normalization, which markets view as too slow, the yen remains a funding currency, favoring dollar-yen upside.

The desk implicitly rejects the consensus view that a hawkish BoJ pivot will drive yen strength by year-end. Instead, it sees the BoJ's caution as a structural factor that, combined with external headwinds, sustains USD/JPY at elevated levels.

Where it sits in our coverage

Our consensus target for USD/JPY Dec-26 stands at 147.50, with a wide firm spread from 140.00 (Morgan Stanley) to 164.00 (JPMorgan). This 24-figure range highlights deep disagreement on the yen's medium-term path. UBS's revised forecast likely sits above consensus, closer to the bullish end.

Specific firm targets illustrate the divide: * JPMorgan: Dec-26 target at 164.00, strongly bullish USD/JPY. * Morgan Stanley: Dec-26 target at 140.00, strongly bearish USD/JPY. * Goldman Sachs: Dec-26 target at 148.00, leaning bearish.

UBS's view aligns more with JPMorgan's bullish stance than the consensus bearish tilt, but the firm is not in our per-firm targets list, so we cannot directly compare.

How other firms see it

The consensus is broadly bearish on USD/JPY by year-end, with a median target of 147.50. Firms like Morgan Stanley (140.00) and Deutsche Bank (143.00) are strongly contrary to UBS's bullish revision, expecting significant yen strength. Goldman (148.00), MUFG (146.00), and BofA (147.00) also lean bearish, aligned with consensus.

On the other hand, JPMorgan (164.00) is the notable bullish outlier, fully aligned with UBS's view of persistent yen weakness. Most other firms fall between these extremes, with targets in the 146-155 range, reflecting a divided outlook.