Will USD/JPY continue to fall ahead of Fed & BoJ policy meetings?
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01MUFG sees further USD/JPY downside on BoJ rate hike expectations.
- 02Consensus Dec-26 target is 147.50, but dispersion is wide (140-164).
- 03JPMorgan is the main contrarian, targeting 164.00 by Dec-26.
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.
Risks to this view
Key upside risk is the BoJ failing to deliver a rate hike or the Fed signaling further tightening, which would undermine the yen rally. Conversely, a more aggressive BoJ or a Fed dovish pivot could accelerate USD/JPY decline.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Scotiabank | Bullish | 140.00 |
Bank of America | Bullish | 149.00 |
UOB | Neutral | 163.50 |
Welcome to the MUFG Global Markets FX Week Ahead podcast with Lee Hardman, Senior Currency Analyst at MUFG. It's Friday, 5th December 2025, and joining Lee to pose some questions on the financial market themes for the week ahead is Abdul Ahad Lockhart, Currency Analyst at MUFG. The following podcast is intended for professional investors and eligible counter parties only, and not for retail clients.
Any content should not be regarded as an offer to conduct investment business or an investment recommendation, but for information purposes only. Hi, Lee. Hi, Abdul Ahad.
So the dollar has continued to weaken ahead of next week's FOMC meeting. What do you think the impact of the Fed's policy update will be on the dollar? Yeah, like you said, we've seen the dollar correcting lower now for two consecutive weeks ahead of next week's Fed policy meeting.
Obviously, over that two-week period, we've seen the U.S. rate market move to more fully price in a 25 basis point cut for the Fed next week. So we think that the market is obviously well priced now for the Fed to cut rates next week, and that's still our kind of base case view. We think that the leadership of the Fed will still try to push through a third consecutive rate cut.
Admittedly, we are expecting there to be more opposition to a rate cut next week. We could see more dissents from other FOMC participants, but we think that the leadership's likely to at least agree some form of compromise agreement with the more hawkish participants. And I think that deal could involve cutting rates, but the trade-off being that the updated guidance going forward is likely to strike a more hawkish tone next week.
So we are expecting a hawkish cut from the Fed, and we think the message from the Fed is likely to indicate that going forward, the pace of rate cuts is likely to slow. It's very unlikely that we'll see another back-to-back rate cut at January policy meeting unless the labor market data by that point in time is particularly bad. Obviously, it's still very much data dependent, but I think the Fed would probably like to signal at least at next week's meeting that they would like to take a bit more time to assess how the economy is developing before they cut rates again next year.
So for the short-term impact, that should help to limit for the dollar downside. We may even see a bit of a relief rally for the dollar next week if the Fed does give more hawkish guidance. Okay.
So we've also seen that the yen has strengthened this week driven by expectations that the BOJ will hike rates. Do you think the yen will continue to rebound if the BOJ hikes rates? Yeah, I definitely think that's what policymakers in Japan are hoping.
Sources & References
How we cover this story
Cross-firm research
USD/JPY Consensus Check: Spot at 158.31, Median Target 150 — Week of Aug 7, 2026
USD/JPY trades 5.54% above the 23-firm median Dec-26 target of 150.0, with a 25.5-point dispersion signalling deep disagreement on the BoJ-Fed spread path.
USD/JPY at 158.46: Consensus Targets 150 by Dec-2026
USD/JPY trades 5.64% above the 23-firm Dec-2026 consensus of 150.0, with a 25.5-point dispersion range signalling deep disagreement on the BoJ-Fed spread path.
USD/JPY Consensus Check: Spot at 157.74, Dec-26 Median 150.0 — Week of August 6, 2026
USD/JPY trades 5.16% above the 23-firm Dec-2026 median of 150.0, with a 25.5-point dispersion range signalling deep disagreement on the BoJ-Fed spread path.