Investing.com -- UBS revised its forecasts for the USD/JPY exchange rate, now expecting a lower trajectory with targets of 144, 142, 140, and 138 by June 25, September 25, December 25, and March 26, respectively.
These new targets are a reduction from their previous forecasts of 148, 148, 145, and 142 for the same periods. The adjustment comes after a steep decline in the USD/JPY pair, which plummeted from 150 to as low as 140, and is currently stabilizing around 142-143.
The rapid fall in the USD/JPY exchange rate since April 2, known as "Liberation Day," has outpaced UBS’s expectations, achieving their 12-month target of 142 much sooner than anticipated.
The decline has been attributed to a combination of US recession fears triggered by new tariffs, diminished confidence in the US dollar, and speculation regarding a potential agreement similar to the Plaza Accord, which could strengthen the yen against the dollar.
Despite the recent drop, UBS anticipates a possible rebound of the USD/JPY to levels between 144-146 in the near term. This outlook is based on the potential reduction of US recession concerns, as the Trump administration may announce additional trade agreements and a possible easing of tensions with China.
As a result, the demand for the yen as a safe haven could decrease, particularly if the market’s expectations of a yen-strengthening accord are recalibrated.
However, UBS suggests that any short-term increase towards the 144-146 range could be an opportunity to diversify away from the US dollar, especially for positions based in Japanese yen.
Over a 9-12 month horizon, UBS foresees a continued downward trend for the USD/JPY pair, driven by a slowdown in US economic growth and potential rate cuts by the Federal Reserve, coupled with the global investors’ desire to diversify from US dollar assets due to policy unpredictability under the Trump administration.
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