US joining JPY intervention matters but policy & fundamentals matter more
At a Glance
The desk believes that while the potential for USD intervention by the U.S. carries weight, the underlying policy and economic fundamentals will dictate the USD/JPY trajectory moving forward. Recent U.S. employment data signaling a weaker labor market has heightened skepticism around the dollar's strength, as evidenced by the muted market reaction to disappointing non-farm payroll figures. Per the full note source, average hourly earnings have fallen back to pre-COVID levels, implying reduced inflationary pressures, which could signal a dovish shift from the Fed that contrasts starkly with the ongoing tightening stance of the BoJ.
Key Takeaways
- 01The potential for USD intervention is overshadowed by fundamental economic indicators.
- 02Recent U.S. jobs data has created skepticism regarding dollar strength.
- 03Current consensus predicts USD/JPY will settle at around 150.0 by December 2026.
- 04The divergence in targets across banks suggests varied outlooks on the dollar's future.
Full Analysis
What the desk is arguing
The desk argues that intervention from the U.S. could influence USD/JPY, but long-term sustainability will rely more heavily on U.S. monetary policy and economic data. Following a weaker-than-expected jobs report, the immediate market response was less aggressive than in prior years, with U.S. Treasury yields reflecting this sentiment by declining six to seven basis points.
Furthermore, there has been a noted decrease in average hourly earnings, now at 3.2%, reflecting a softening labor market that may impact the Fed's future rate decisions. The drop in the unemployment rate, despite a reduction in the labor force, adds a layer of complexity that traders must navigate.
Where it sits in our coverage
Our consensus target for USD/JPY is 150.0 by December 2026, with a range of 145.0 to 165.0 according to various firm forecasts. Notably, firms like goldman project a target of 165.0 for December 2026, while commerzbank states a more conservative target of 142.0.
This view is somewhat in alignment but also diverges as it leans towards the lower end of the consensus with mufg projecting 146.0 for December 2026, favoring caution amid the evolving economic landscape.
How other firms see it
Several firms are aligned with a cautious bullish outlook for USD/JPY, including rbc and jpmorgan, both anticipating targets around 156.0 and 157.0 respectively for March 2026. Conversely, firms like deutschebank maintain a more bearish stance, with December targets significantly lower than the current market price.
Traders should also keep an eye on the EUR/USD movements, as fluctuations in this pair may provide insight into broader dollar dynamics amid contrasting monetary policies between the ECB and the Fed.
Market Implications
Watch for USD/JPY behavior around the 161.00 level as it approaches critical support and resistance thresholds. Future Fed communications, particularly regarding rate policy following the recent jobs report, will also be pivotal in shaping market sentiment.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Scotiabank | Bullish | 140.00 |
Bank of America | Bullish | 149.00 |
UOB | Neutral | 163.50 |
From the original
Derek Halpenny, Head of Research Global Markets EMEA & International Securities sits down with James Roulston in FX Institutional Sales to discuss the FX and rates impact following the much weaker than expected US jobs report. Derek also outlines the implications for USD/JPY foll
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