US Dollar to Yen Forecast: Clash of Economics and Politics, 140 or 160 in 12 months

December 31, 2024 - Written by Frank Davies

STORY LINK US Dollar to Yen Forecast: Clash of Economics and Politics, 140 or 160 in 12 months

The latest monetary policy statements triggered dollar gains and yen losses, with the dollar-to-yen (USD/JPY) exchange rate jumping to five-month highs near 158.

The Pound to Yen (GBP/JPY) exchange rate is trading around 197.

Monetary policies will remain a key element during 2025, although geo-political developments will also have a key impact as the Trump Administration takes office.

HSBC expects a firm dollar tone will dominate; “our view is that it will resume rising when the broad USD breaks out of its consolidation and starts to strengthen again.”

It has an end-2025 USD/JPY forecast of 160. It also expects GBP/JPY to hold at 197 by the end of next year.

Danske Bank expects further Fed interest rate cuts will be the dominant factor with USD/JPY sliding to 140 at the end of 2025.

It forecasts GBP/JPY will post sharp losses to 171 by the end of 2025.

The Bank of Japan made no changes to monetary policy at the December meeting with interest rates held at 0.25%.

MUFG commented; “More importantly, Governor Ueda refrained from sending a strong signal that the BoJ is planning to hike rates at the next policy meeting on 24th January. He only added that there will be a certain amount of information available by the next meeting while emphasizing that the full picture on the wage trend will be clear in March or April.”

According to Bank of America; “Looking ahead, we remain comfortable with our forecast that the BoJ will deliver its next hike, to 0.5% at the January ’25 MPM, followed by two more 25bp hikes to 0.75% in July ’25 and 1% in January ’26.”

It added; “As the US presidential inauguration day comes a few days ahead of the BoJ’s Jan MPM, a hike at the Jan MPM is not a done deal.

MUFG added; “It has provided a green light for speculators to rebuild short yen positions and increases the likelihood that USD/JPY will rise back up toward year to date highs at just above the 160.00-level.”

The Federal Reserve cut interest rates by 25 basis points to 4.50%, but there was a significant shift in forecasts with committee members now only projecting two rate cuts for 2025 compared with four in the September set of forecasts.

Fed Chair Powell’s rhetoric was also relatively hawkish with comments that the pace of rate cuts could slow.

ING commented; “Our forecast profile of a higher USD/JPY is largely down to the fact that we expect the US 10yr Treasury to end 2025 at 5.50%.”

In contrast, Danske Bank expects a firm yen tone; “We believe the Fed is likely to cut rates more aggressively than markets currently anticipate in 2025, which could push the pair lower.”

Dollar and wider currency policies will be potentially very important.

ING commented; “There is some talk of a ‘Mar-a-Lago accord’ to weaken the US dollar. We think Trump’s policies are dollar positive, but if Washington’s dollar policy were to make an impact, especially if US growth disappoints, we suspect USD/JPY would lead $ lower.

There will also be pressure for Bank of Japan intervention to support the yen if there is excessive weakness.

At this stage it has an end-2025 forecast of 160.

ING also forecasts GBP/JPY at 198 at the end of 2025.

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TAGS: Japanese Yen Forecasts