Will USD/JPY continue to fall ahead of Fed & BoJ policy meetings?
At a Glance
The desk is cautiously optimistic about the potential for USD/JPY to continue its downward trajectory as expectations for a Bank of Japan (BoJ) rate hike gain momentum. Per the full note from MUFG EMEA, analysts Lee Hardman and Abdul-Ahad Lockhart highlight that the recent decline in USD/JPY is largely driven by heightened speculation surrounding BoJ policy adjustments. With the Fed's stance remaining relatively stable, the focus shifts to how the BoJ's actions may reshape the currency pair's dynamics in the near term.
Key Takeaways
Full Analysis
What the desk is arguing
MUFG's Lee Hardman and Abdul-Ahad Lockhart argue that USD/JPY's recent drop reflects intensifying BoJ rate hike expectations ahead of the upcoming policy meetings. They question whether the pair will continue to fall, implying a bearish bias on USD/JPY.
The desk supports this view by noting the market's repricing of BoJ tightening, which has weighed on the yen. The upcoming Fed meeting could further amplify the divergence if the Fed signals a pause.
They implicitly reject the idea that the Fed's hawkishness will offset the BoJ's moves, suggesting the yen upside is more durable.
Where it sits in our coverage
Our consensus Dec-26 target for USD/JPY is 147.50, with a range from 140.00 (Morgan Stanley) to 164.00 (JPMorgan). MUFG's own Dec-26 target of 146.00 is slightly below consensus, aligning with the bullish yen view.
Several firms share this bearish USD/JPY bias, including: * Goldman Sachs: Dec-26 target 148.00 * Deutsche Bank: Dec-26 target 143.00 * Morgan Stanley: Dec-26 target 140.00
These are consistent with the thesis of further USD/JPY decline.
How other firms see it
JPMorgan stands out as a notable contrarian, with a Dec-26 target of 164.00, well above spot and consensus. This suggests they expect the BoJ to remain dovish or the Fed to stay hawkish, driving USD/JPY higher.
Other firms are more mixed: * Barclays: Dec-26 149.00 * ING: Dec-26 152.00 * BofA: Dec-26 147.00 These targets are closer to consensus but still imply modest yen strength.
Market Implications
If the BoJ delivers a hawkish surprise and the Fed stays steady, USD/JPY could break below 155 and test the 150-153 area. However, a Fed hawkish surprise or BoJ disappointment could reverse the move, especially with JPMorgan's high target acting as a magnet for bears.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 159.60 |
Bank of America | Bullish | 149.00 |
Rabobank | Bullish | 145.00 |
From the original
Lee Hardman, Senior Currency Analyst, and Abdul-Ahad Lockhart, Currency Analyst, discuss the impact on USD/JPY from the upcoming BoJ and Fed policy meetings. USD/JPY has dropped this week as BoJ rate hike expectations have intensified, but will it continue?
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