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.
What the desk is arguing
The desk is emphasizing the ECB's potential for rate hikes amid a faltering belief in Fed tightening this year. According to the commentary, there are two expected ECB rate hikes in summer, while the Fed’s decision may hinge on consumer behavior heavily influenced by current inflation.
The commentary illustrates that while U.S. growth appears robust at around 2-2.5% GDP, inflation surpassed the critical 4% threshold, pressuring consumer spending. As inflation is expected to undershoot the Fed’s target by late 2027, market participants might be overly optimistic about aggressive Fed rate hikes this year.
Where it sits in our coverage
Our current consensus for USD/JPY sits at 159.0000 against a median target of 155.0000 for March 2026, with forecasts from firms like Commerzbank (142.0000), Barclays (149.0000), and BNP Paribas (148.0000) for December 2026. This positions our view near the top of the range among median expectations, indicating a potential divergence from firms expecting a stronger JPY.
How other firms see it
Firms such as Scotiabank and MUFG are notably bullish on the JPY, expecting targets around 140-152 for late 2026, highlighting a more pessimistic view on USD strength moving forward. Conversely, Stanchart maintains the most aggressive JPY forecast at 160.0000 for March 2026, showing a significant range in expectations which suggests volatility ahead as expectations shift.
Related pairs that could influence the outlook include EUR/USD, reflecting the spillover from ECB actions, and USD/CHF amid shifts in risk sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01ECB is expected to implement two rate hikes in the summer.
- 02Fed's tightening narrative remains uncertain with potential factors undermining wage growth.
- 03Current USD/JPY spot is 159.0000 with forecasts generally trending towards strengthening JPY.
- 04Economic conditions and inflation expectations are closely intertwined, complicating Fed policy.
Market implications
Focus on any changes in U.S. consumer spending or inflation data releases that could reshape expectations for Fed policy. Traders should monitor the USD/JPY for directionality, especially around key levels like 159.0000 and the consensus targets in March and December 2026.
Risks to this view
Upside risks to the Fed's trajectory could arise from stronger-than-expected consumer inflation prints, which might reset market expectations for immediate rate hikes. Additionally, any geopolitical energy shocks that exacerbate inflation could fuel unexpected Fed action, impacting USD/JPY dynamics.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bullish | 148.00 |
UBS | Bearish | 160.00 |
UOB | Bearish | 160.55 |
Articles Our latest views on the major central banks 10:49 United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We're now expecting two European Central Bank rate hikes in the summer, though we're still not convinced that the Federal Reserve will tighten policy this year Carsten Brzeski , James Knightley , James Smith and Min Joo Kang What to expect from the Fed, ECB, BoE and BoJ in the coming months Federal Reserve The US economy is more insulated from Middle East risks than most countries due to its energy independence, but it is not immune. Higher motor fuel costs are adding to cost pressures, with inflation breaking above 4%. Business surveys currently point to 2-2.5% GDP growth; the economy is adding jobs and equity markets are at record highs.
Understandably, market expectations of potential Federal Reserve rate hikes have increased. That said, the US growth story is concentrated in high-income household spending and tech investment, while only three sectors – government, private education & healthcare services and leisure & hospitality – are actually adding jobs. The low-hire, low-fire economy means weak wage growth, with real household disposable income having fallen for three consecutive months.
Consequently, a renewed spike in energy costs risks demand destruction. It is a very close call whether the Fed will hike rates this year, but on balance we think it will instead choose to look through a near-term energy spike and hold rates steady for an extended period. Consumer and market inflation expectations remain in tolerable ranges and slowing housing rents, weak wage growth, a waning influence from tariffs and eventual energy price falls mean that inflation could undershoot the target in the second half of 2027.
We look for 25bp rate cuts in 2Q 2027 and 3Q 2027 as policy eventually returns to a neutral setting. James Knightley European Central Bank Even if the current inflation wave in the eurozone is very different from soaring and self-enforcing inflation in 2022, a lot of the European Central Bank’s actions seem to be driven by the institutional memory of 2022. Not so much by recent inflation developments.
So far, the increase in headline inflation has remained moderate. And while the knock-on effects of higher energy prices on other prices, like transportation and food, will be hard to avoid, the latest survey-based inflation expectations have come down a bit. Selling price expectations in both industry and services, and the ECB’s own longer-term consumer inflation expectations, all dropped slightly in May.
Even as some critics argue the ECB risks repeating its 2022 mistake of reacting too late to an obvious inflation shock, the comparison with that period is flawed – not least in terms of fiscal stimulus and savings. Back in 2022, eurozone inflation was already above 4% YoY when the energy price shock hit. The ECB’s infamous late reaction came with the first rate hike in July 2022, when headline inflation was actually above 8% YoY.
Sources & References
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Cross-firm research
USD/JPY Consensus Check: Spot at 157.07, Median Target 152 — Week of September 21, 2026
USD/JPY trades at 157.07, roughly 3.3% above the 23-firm median Dec-26 target of 152.0, with a 25.5-point dispersion signalling deep disagreement on the BoJ rate path.
USD/JPY Consensus Check: Spot at 156.89, Dec-26 Median 152.0 — Week of September 20, 2026
USD/JPY trades at 156.89, 3.22% above the 23-firm Dec-26 median of 152.0, with a 25.5-point dispersion signalling deep disagreement on the BoJ-Fed spread path.
USD/JPY Consensus Check: Spot at 156.89, Target 152.0 — Week of September 19, 2026
USD/JPY trades 3.22% above the 23-firm Dec-26 median of 152.0, with a 25.5-point dispersion range signalling deep disagreement on the BoJ-Fed spread path.