JPY 150 Battle: Can the Yen's Appreciation Be Sustained? UBS Warns of Three Risks

TradingKey - Despite the continuous waves of news about US President Trump's tariffs, the exchange rate of the Japanese yen has continued to appreciate. It broke through the 150 mark for the first time in more than two months. Recently, UBS raised its target price for the Japanese yen in 2025 but warned that the upward trend is limited.

UBS's latest report shows that the bank has lowered its target price for the US dollar against the Japanese yen (USD/JPY) in June 2026 from 156 to 148, its target price by the end of this year from 149 to 145, and set a target price of 142 for March 2026.

Since the beginning of this year, Yen has rebounded significantly from the level of 158 at the start of the year and reclaimed the 150 mark after two months. Against the backdrop of recent weakening of US economic data, the exchange rate of the US dollar against the Japanese yen once dropped to 148.57 and is now quoted at 150.43.

[USD/JPY in 2025, Source: Investing.com]

The US dollar has declined, and the Japanese yen has fallen for two consecutive months, with declines of 1.27% and 2.95% respectively. The market is now concerned about whether the upward momentum of the yen's appreciation can be sustained.

According to CFTC, the number of net long positions in the Japanese yen held by speculators (non-commercial sector) has soared to 60,000 contracts, almost approaching the highest level in history.

Japanese consulting firm Market Risk Advisory said that perhaps we need to pay close attention to the Japanese yen and be prepared for any unexpected appreciation of the yen. The market's vigilance against the coexistence of an economic slowdown and rising prices in the United States has intensified, and funds are more likely to flow to Japan, which adheres to the interest rate hike path.

However, UBS believes that in the short term, it is rare for speculative buying of the Japanese yen to increase so much, and yen selling for profit-taking may increase rapidly. Currently, what supports hedge funds' buying of the Japanese yen is the market's optimistic expectation of further interest rate hikes by the Bank of Japan. However, if the Bank of Japan shows a cautious attitude towards raising interest rates as soon as possible, it cannot be denied that the acceleration of yen selling may occur.

UBS said that although it has expected the exchange rate of the US dollar against the Japanese yen to decline before the end of this year, the current rate of decline is indeed faster than expected.

UBS predicts that the upward trend of the Japanese yen may slow down in the future, and there are three reasons:

• The net long position in the Japanese yen has already reached a crowded level, which may limit the upward trend of the yen in the future;
• Although the Federal Reserve will cut interest rates cautiously, this does not mean that the US dollar against the Japanese yen will depreciate significantly;
• The attitude of the Japanese authorities towards the Japanese yen and the interest rate of Japanese government bonds is "orderly increase"; Bank of Japan Governor Kazuo Ueda recently warned that if the interest rate of Japanese government bonds surges, they will intervene by purchasing government bonds at any time.