UBS raises USD/JPY forecasts on oil prices and BoJ caution - Investing.com UK
UBS's recent forecast revisions for USD/JPY underscore growing concerns about oil price volatility and the Bank of Japan's commitment to accommodative monetary policies. They have adjusted their projections to reflect these factors' influence on the USD/JPY exchange rates, indicating a clear bullish sentiment in the near term. This aligns with the broader consensus of market participants, but highlights a notable divergence among the forecasts from different institutions.
What the desk is arguing
The desk sees UBS's raised forecasts for USD/JPY, particularly against a backdrop of resilient oil prices and muted action from the Bank of Japan, as a significant indicator of potential trends in the market. The perception of increased inflationary pressures due to oil could prompt the BoJ to reconsider its stance, thus supporting a stronger JPY against the dollar in the coming months.
Moreover, our internal targets indicate that, while the consensus expects the pair to taper down towards 147.5 by the end of 2026, firms like JPMorgan anticipate a more robust trajectory, positing targets as high as 164. This suggests that a significant portion of the market may still harbor bullish convictions contrary to the median consensus outlook.
Where it sits in our coverage
The current consensus target for USD/JPY stands at 147.5 by December 2026, with a spread ranging from 150.0 to 157.0. This consolidation indicates some degree of uncertainty among market participants regarding the sustainability of current exchange levels. However, UBS's upward adjustments showcase an optimistic perspective that diverges from the more conservative expectations held by the majority.
Specific firms are expressing notable forecasts, including: - **JPMorgan**: Dec-26 target of 164.0 - **Goldman**: Dec-26 target of 148.0 - **Mitsubishi UFJ Financial Group (MUFG)**: Dec-26 target of 146.0
How other firms see it
While UBS's revised forecasts paint an optimistic picture, other firms remain more cautious. **Goldman** and **MUFG** have chosen to hold their projections closer to traditional benchmarks, highlighting the differing outlooks in the market.
- **Goldman**: Closer alignment to the market with a Dec-26 target of 148.0. - **Morgan Stanley**: A more bearish view with a target of 140.0 by Dec-26.
Some firms remain firmly entrenched in their expectations, leading to a diverse range of projections.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01UBS's revised USD/JPY forecasts reflect concerns about oil prices and BoJ policy.
- 02Market sentiment is divided, with some firms anticipating higher targets.
- 03Consensus target is significantly lower compared to some bullish projections.
Market implications
The upward revision by UBS could reinforce bullish sentiment in the FX market, potentially driving traders to recalibrate their positions. This divergence among institutions suggests that some market participants may be underestimating the effects of external factors such as oil prices on the USD/JPY dynamic.
Risks to this view
The primary risk stems from a sudden shift in oil prices, which could alter inflation expectations and thereby influence the BoJ's monetary policy. Additionally, geopolitical tensions or economic disruptions can also impact JPY strength unpredictably, challenging even the most robust forecasts.
Sources & References
How we cover this story
Cross-firm research
USD/JPY at 156.80: Consensus Targets 147.5 but JPM Holds 164
USD/JPY trades 6.3% above the eight-firm median target of 147.5, with a 24-point dispersion range exposing deep disagreement on BoJ policy timing and US yield durability.
USD/JPY at 156.90: Consensus Targets 147.5, Spread Runs 24 Figures
USD/JPY trades 6.4% above the eight-firm median Dec-26 target of 147.5, with a 24-figure dispersion exposing deep disagreement on BoJ pace and US yield trajectory.
USD/JPY at 157.23: Consensus Sees 147.5, Spread Runs 24 Figures
USD/JPY trades 6.6% above the eight-firm median Dec-26 target of 147.5, with a 24-figure dispersion that maps directly onto competing BoJ rate-path assumptions.