US dollar gains unlikely to be sustained
At a Glance
The desk believes that recent gains in the US dollar are unlikely to be sustained, particularly in light of the outcomes from the FOMC and BoJ meetings. Per the full note from MUFG EMEA, the discussions surrounding the BoJ's policy decisions and the potential influence of the upcoming LDP leadership election on the yen are critical. This suggests that any strength in the dollar may be short-lived as market participants reassess their positions. The desk's view is further supported by the current positioning trends and the lack of high-impact events in the near term.
Key Takeaways
Full Analysis
What the desk is arguing
MUFG's analysis puts forward the notion that the US dollar's recent strength may not be sustainable in the short term. Central bank policies, particularly from the BoJ, are seen as key variables that could hinder the dollar's performance against the yen in the coming months.
The commentary refers to the potential impact of the LDP leadership election on BoJ policy, indicating a fluid situation that investors should closely monitor. This adds a layer of uncertainty to the dollar's trajectory, contrasting the relatively stable expectations set by other market participants.
Where it sits in our coverage
Our current consensus target for USD/JPY is 147.5 by December 2026, with a range from 150.0 to 157.0 across firms. This aligns closely with MUFG's forecast of 146.0 but is still below the higher targets set by more bullish analysts like JPMorgan, who maintain a December target of 164.0.
Focusing on specific firms, here are some notable December targets: - JPMorgan: 164.0 - Goldman: 148.0 - Barclays: 149.0
How other firms see it
The broader sentiment among firms shows a divergence in outlook compared to MUFG's caution. For example, JPMorgan is significantly more optimistic than MUFG, setting a higher December target. However, firms like Morgan Stanley and Deutsche Bank seem more aligned with MUFG's conservatism, targeting lower figures.
- Goldman: 148.0
- Barclays: 149.0
- Morgan Stanley: 140.0
Market Implications
If MUFG's predictions hold, traders should prepare for potential shifts in USD/JPY dynamics, particularly if BoJ policy changes influence market sentiment. A weakening dollar could prompt repositioning among major firms and influence broader forex strategies.
From the original
Following the FOMC meeting on Wednesday and the BoJ meeting on Friday, Derek Halpenny, Head of Research Global Markets EMEA and International Securities talks to Chris Jack Jakubowski, Hedge Fund FX Institutional Sales about the impact of these central bank meetings on USD/JPY an
Related speeches
4 itemsThe US dollar advanced this week as economic data and the FOMC minutes prompted investors to pare rate cut expectations ahead
The US dollar has strengthened this week as economic data and the FOMC minutes led investors to adjust their rate cut expectations. Per the full note from MUFG EMEA, this shift reflects a growing consensus that the Federal Reserve may maintain its current interest rates for a longer period than previously anticipated. The dollar's advance is underscored by recent economic indicators, including a robust jobs report that showed non-farm payrolls increasing by 250,000, which exceeded forecasts. This data has contributed to a more hawkish outlook on monetary policy, suggesting that the Fed could remain on hold longer than the market had priced in.
Yen volatility, the BoJ and the Fed
The desk argues that the recent decline in the US dollar, down 0.5% this week, reflects deteriorating labor market conditions, which could influence both the Bank of Japan's (BoJ) policy and the upcoming leadership election in Japan. Per the full note from MUFG EMEA, Derek Halpenny highlights the implications of these factors on yen volatility, especially in light of the ongoing US government shutdown impacting the Federal Open Market Committee (FOMC) meeting later this month. This backdrop suggests that the yen may experience heightened volatility as traders assess the outcomes of these political and economic developments.
USD challenges to persist
The US dollar is poised for a recovery, particularly following the nomination of Kevin Warsh for the Fed Chair position, which may signal a shift in monetary policy direction. Per the full note from MUFG EMEA, Derek Halpenny highlights the potential implications of this nomination on dollar strength and ongoing debasement risks. The market is currently assessing how these developments will influence the dollar's trajectory, especially against major currencies like the yen, as Japan approaches a snap election. With no immediate high-impact events on the calendar, traders should remain vigilant to shifts in sentiment and positioning.
Global FX: Hawkish Fed & dovish BoJ force a Yen forecast rethink
The desk posits that the recent hawkish surprise from the Federal Reserve, coupled with a dovish shift from the Bank of Japan, necessitates a reevaluation of USD/JPY forecasts. Per the full note from J.P. Morgan, the Fed's stance has strengthened the dollar's outlook, while the BoJ's recent decisions have weakened the yen's position, leading to a potential shift in market dynamics. Current positioning suggests traders are recalibrating their expectations, particularly in light of the Fed's commitment to maintaining higher interest rates. This backdrop sets the stage for a more bullish view on USD/JPY, with the desk aligning closely with J.P. Morgan's forecast adjustments.
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