UBS raises USD/JPY forecasts on oil prices and BoJ caution - Investing.com

What the desk is arguing

UBS raises its USD/JPY forecasts, driven by higher oil prices and the Bank of Japan's cautious stance. Higher oil prices boost USD demand as oil is priced in USD, while the BoJ's reluctance to normalize policy keeps yen carry trade attractive. The revision signals a sharper divergence from the consensus view that the yen will strengthen by year-end.

UBS implicitly rejects the view that the BoJ will accelerate tightening despite persistent inflation. Instead, it sees the BoJ maintaining ultra-loose policy, which combined with high oil prices, supports USD/JPY upside. This contrasts with the consensus median target of 147.5 for Dec26, which implies a strong yen recovery.

Where it sits in our coverage

Our internal coverage shows a consensus median target of 147.5 for Dec26, but the firm spread is wide at 24 figures (from 140 to 164). Our published research highlights this dispersion and notes that the consensus is skewed bearish USD, yet UBS's revision to higher forecasts places it on the hawkish side of the spectrum.

Specific firms highlight the divide: JPMorgan has a Dec26 target of 164.00, the most bullish USD, while Morgan Stanley targets 140.00, the most bearish. Barclays at 149.00 and ING at 152.00 are closer to consensus but still below UBS's implied level if revised. The wide range underscores the uncertainty around BoJ policy and oil prices.

How other firms see it

JPMorgan aligns with UBS's hawkish view, forecasting USD/JPY at 164.00 by Dec26, well above consensus. Morgan Stanley is the strongest contrary, targeting 140.00, expecting aggressive BoJ tightening. Goldman Sachs at 148.00 and Bank of America at 147.00 are aligned with the consensus bearish USD view, opposite to UBS.

Other firms like Deutsche Bank (143.00) and MUFG (146.00) lean slightly below consensus, while Barclays (149.00) and ING (152.00) are more neutral. The diversity of views reflects the high uncertainty in USD/JPY outlook.