UBS sees a potential shift in the trajectory of the currency pair.

Analysts at UBS suggest that the Japanese yen, which has been experiencing significant weakness, may be set for a reversal.

This outlook is based on increased concerns from Japanese policymakers and businesses about the negative impacts of the yen’s depreciation on the country’s economy.

The report cites a recent survey of local small and medium-sized enterprises (SMEs), which are a major employment sector in Japan, employing around 70% of the workforce. The survey results showed that 35% of respondents experienced negative sales impacts due to the yen’s weakness, and a significant 63.9% reported adverse effects on profits.

Moreover, half of the surveyed companies expressed that an “appropriate level” for USDJPY would be between 110 and 120, as opposed to the higher levels the currency pair has recently seen.

UBS points to the upcoming Bank of Japan (BoJ) meeting on June 14 as a critical event that may influence the yen’s direction. The firm interprets the BoJ’s tolerance for rising 10-year Japanese Government Bond (JGB) yields, which have reached an eleven-year peak of 1%, as a sign of a possible hawkish turn in policy.

UBS anticipates that BoJ Governor Ueda may signal readiness to initiate a rate-hiking cycle, with expectations of an increase in the policy rate from 0–0.1% to 0.25% in July, possibly followed by two additional 25 basis point hikes in 2025.

Given the potential for a more hawkish stance by the BoJ and signs of slowing U.S. jobs and inflation data, UBS maintains a downward trajectory for USD/JPY.

They believe that a peak around 160 for the currency pair is likely, with a medium-term decline anticipated.

The report outlines potential boundaries for USD/JPY, suggesting that a rise to 157.5–160 could trigger foreign exchange intervention, while a drop to 150–152 might attract demand for yield-carry trades.

However, UBS also notes that if U.S. economic data does not show signs of moderation, the USD/JPY could remain at its elevated levels.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.