Japanese yen slowly erases intervention-driven gains as macro backdrop remains negative
The desk views the Japanese yen as facing continued bearish pressure, primarily due to persistent negative macroeconomic fundamentals and ineffective intervention measures. Per the full note from Giuseppe Dellamotta, the Bank of Japan's (BoJ) recent decision to maintain interest rates at 0.75% reflects a cautious stance amid rising inflation forecasts and downgraded growth expectations linked to geopolitical tensions. With the Fed's shift away from an easing bias and the potential for increased economic activity post-conflict, the yen's outlook remains bleak. Upcoming US economic data, particularly the NFP report, could further influence USD/JPY dynamics.
What the desk is arguing
The desk argues that the Japanese yen is likely to remain under pressure as macroeconomic conditions continue to deteriorate. Per the full note source, the BoJ's decision to keep rates unchanged, coupled with dissenting votes for a hike, highlights the central bank's struggle to balance inflation and growth amidst external uncertainties.
The recent geopolitical tensions, particularly the US-Iran conflict, have implications for global energy prices and, consequently, inflation. The Fed's potential pivot towards rate hikes in response to sustained inflation could further weaken the yen, as higher US rates typically bolster the dollar against other currencies.
Where it sits in our coverage
Our consensus target for USD/JPY is 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan, which sees a similar trajectory for the yen, while bofa presents a more bearish outlook, suggesting divergence in expectations around the yen's resilience against the dollar.
How other firms see it
Firms like jpmorgan and citi are aligned in their bearish outlook for the yen, anticipating continued weakness against the dollar. Conversely, bofa holds a contrary view, expecting a stronger yen due to potential shifts in market sentiment.
The trajectory of USD/JPY is closely tied to the outcomes of the upcoming US NFP report and the University of Michigan Consumer Sentiment survey, which may provide insights into the Fed's future monetary policy direction.
What the calendar says
With the US NFP report and University of Michigan Consumer Sentiment survey scheduled for today, these events could significantly impact USD/JPY dynamics, particularly if they reveal stronger-than-expected labor market conditions or consumer confidence.
Key takeaways
- 01The Japanese yen remains bearish due to negative macroeconomic fundamentals.
- 02The BoJ's decision to maintain interest rates reflects a cautious approach amid inflation concerns.
- 03Geopolitical tensions, particularly the US-Iran conflict, could influence global energy prices and inflation.
- 04Upcoming US economic data will be crucial in shaping the USD/JPY outlook.
Market implications
Watch for USD/JPY around the 156.50 support level; a break below could signal further declines towards 155.00. The upcoming NFP report may also shift market sentiment significantly.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 165.00 |
UOB | Bearish | 163.00 |
Citi | Bearish | 163.00 |
FUNDAMENTAL OVERVIEW USD: The US dollar regained some ground yesterday following renewed tensions in the Strait of Hormuz. In fact, The US and Iran exchanged fire in the most serious test of their month-long ceasefire, with Iranian forces attacking three US Navy destroyers in the Strait of Hormuz using missiles, drones and small boats, and the US responding with strikes on Bandar Abbas and Qeshm Island. The escalation was followed by quick de-escalation as a US official described the strikes as not an act of war and said the ceasefire remained in effect.
Trump later told ABC the strikes were a "light blow" and a "love tap" and confirmed ceasefire negotiations with Iran are continuing. Iran has not submitted a response to US war-ending proposal yet, so we will likely continue to consolidate until Iran accepts the proposal and Strait of Hormuz is reopened, or the ceasefire is clearly breached and the war restarts. Looking ahead, the Fed is slowly abandoning the easing bias amid resilient US data and elevated energy prices.
The reopening of the Strait could weigh on the greenback in the short-term as oil prices will likely crater and rate cut bets will increase. After that though, the focus will quickly turn back to the Fed and the economic data. With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021.
JPY: On the JPY side, nothing has changed fundamentally. Japanese officials have been intervening in the FX market since last week but dip-buyers in USD/JPY have been quick in fading the moves and selling the yen. Unfortunately, interventions are useless given the negative macro backdrop.
In fact, the BoJ left interest rates unchanged at 0.75% as widely expected last week. The quarterly outlook report showed a significant upward revision for inflation and a downgrade for growth due to the US-Iran war. The highlight of the decision though were the three dissenters who voted for a rate hike, which gave the Japanese yen a short-term boost.
Most of the gains were pared back as Governor Ueda struck a more measured tone in the press conference as he noted that they want to take a little bit more time in gauging how the Middle East situation would affect Japan’s economy and acknowledged that underlying inflation is currently a bit below the 2% target. He added that they expect underlying inflation to be around 2% from second half 2026 but admitted that he doesn’t know how many months it would take to gauge timing of their next rate hike. This is going to keep weighing on the Japanese yen despite intervention risks.
Sources & References
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Cross-firm research
USD/JPY Consensus Check: Spot at 161.71, Median Target 149 — Week of July 11, 2026
USD/JPY trades at 161.71, some 8.53% above the 23-firm median Dec-26 target of 149.0, with a 25-point dispersion signalling deep disagreement on the BoJ path.
USD/JPY at 161.71: Consensus Targets 149.0 With a 25-Point Spread
USD/JPY trades 8.53% above the 23-firm Dec-2026 consensus of 149.0, with a 25-point dispersion that reflects sharply divergent BoJ and US rates assumptions.
USD/JPY Consensus Check: Spot at 161.71, Median Target 149.0 — Week of July 10, 2026
USD/JPY trades at 161.71, 8.53% above the 23-firm median Dec-26 target of 149.0, with a 25-point dispersion that reflects deep disagreement on the BoJ-Fed rate-spread path.