This adjustment reflects growing confidence in the Bank of Japan’s (BOJ) ability to implement further rate hikes, aligning with UBS economists’ call for a 25 basis-point hike during the December 19 policy meeting.
“Rising confidence in the BOJ’s ability to hike rates further has been the key driver of the move,” UBS analysts noted, as the yen continues its recent outperformance against the dollar.
The revision to UBS’s USDJPY outlook also aligns with the bank’s broader FX trading views. The firm remains short EURJPY, expecting it to decline to 151 by the end of 2025 and to 145 by the following year.
In the broader G10 FX market, UBS observed a period of stability in recent weeks, with the USD trading near mid-November highs.
This calm persisted despite President-elect Donald Trump’s tariff-related announcements on social media. While markets initially viewed these proclamations as a negotiation tactic, UBS warned that this sentiment might be “short-lived.”
Additionally, political uncertainty in Europe, including a no-confidence vote against the French government, could weigh on the euro.
“We see potential for a larger and more sustained impact now than in June, given the weaker growth backdrop and dovish ECB repricing,” UBS analysts explained. This situation supports their end-2025 EURUSD target of 1.04.
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