US dollar upside risks – the Fed, BoJ & BoE
At a Glance
The desk sees potential upside risks for the US dollar, driven primarily by the recent Federal Reserve rate hike and changes in monetary policy by Japan's Bank of Japan (BoJ) and the UK's Bank of England (BoE). As per the full note from MUFG EMEA, they suggest that the US dollar's strength might persist amid these central bank actions, which could pressure the USD/JPY pair following the BoJ's tightening measures. Current market consensus for JPY suggests a median target of 152.0 by December 2026, reflecting varied expectations from different firms, with prominent forecasts ranging widely from 140.0 to 165.5, indicating uncertainty in future exchange rate movements.
Key Takeaways
Full Analysis
What the desk is arguing
The desk frames this as a time of increased volatility for the US dollar, with the FOMC's recent rate hike likely to support its value against both the JPY and GBP. Derek Halpenny from MUFG notes that market participants should closely monitor how these policy shifts impact USD/JPY movements, particularly following the BoJ's recent policy adjustments.
Indeed, as highlighted by the commentary, immediate reactions to the BoJ's rate hike sent USD/JPY lower late in the week, eliciting questions about the sustainability of this trend. As market participants grapple with these new dynamics, the potential for further USD appreciation can't be ignored, especially with solid indications from the Fed of a hawkish stance.
Where it sits in our coverage
Currently, our consensus target for USD/JPY is at 152.0, with range estimates spanning from 140.0 to 165.5 by December 2026. Specific firm forecasts include: - Goldman: Dec26 target of 165.0 - Nomura: Dec26 target of 165.5 - MorganStanley: Dec26 target of 140.0
This view aligns with a broader market perspective that anticipates a weaker JPY against a strengthening USD, noted in the consensus targets and indicating potential downside risks for the currency pair as current estimates for other currencies highlight similar sentiments.
How other firms see it
Firms like Goldman and Nomura are aligned in their outlook for USD/JPY, projecting higher targets which support the desk's view on potential USD strength amid ongoing central bank shifts. Conversely, firms such as MorganStanley and Commerzbank provide more cautious estimates, signaling possible concerns regarding the sustainability of USD strength given JPY's historical resilience.
Additionally, movements in EUR/JPY may also reflect these dynamics, especially as the broader trends in both the BoE and the Fed create ripples across this cross-currency pair.
Market Implications
Watch for USD/JPY to react to upcoming economic data releases and guidance from the Fed, particularly around interest rate discussions. A break below recent support levels could amplify bearish sentiment around JPY, while any surprises from central bank communications could strengthen the dollar even more.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bullish | 148.00 |
UBS | Bearish | 160.00 |
UOB | Bearish | 160.55 |
From the original
Derek Halpenny, Head of Research Global Markets EMEA & International Securities is joined today by Nicolaus Jan Thiesen in FX Sales in Duesseldorf to discuss the latest developments in the financial markets. It was a busy week, so Derek provides an updated US dollar view followin
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4 itemsDeutsche Bank US Dollar To Yen Forecast: USD/JPY Seen Falling To 150 By End-2026 - Exchange Rates Org UK
The desk frames the outlook for USD/JPY as bearish, projecting a decline to 150 by the end of 2026, in line with Deutsche Bank's forecast [source]. This bearish stance is supported by expectations of a potential pivot in the Bank of Japan's (BoJ) monetary policy, which could lead to a stronger yen. Currently, the market consensus anticipates a gradual weakening of the dollar against the yen, with median targets for March, June, and December 2026 sitting at 154.5, 152, and 148 respectively, highlighting a significant spread in projections among institutions.
Our latest views on the major central banks
The desk's interpretation suggests cautious optimism for the European Central Bank (ECB) with anticipated rate hikes in the summer, juxtaposed against a prevailing skepticism surrounding the Federal Reserve's ability to tighten policy this year. As per the full note by Brzeski et al., inflation pressures, influenced by rising energy costs, may not lead to immediate Fed action, particularly as the U.S. economic narrative focuses largely on affluent consumer spending and tech-driven growth. The current consensus on the USD/JPY, where the currency pair is trading around 159.0000, has firm targets clustering around 150.0000 by December 2026, reflecting differing expectations across firms but a general trend towards a strengthening JPY as the BoJ's stance gradually shifts. With no high-impact events on the calendar in the next month, traders will be keenly watching for data releases that could shift this delicate balance.