Will USD/JPY continue to fall ahead of Fed & BoJ policy meetings?

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.