Yen Forecast to Fall Back to 160 USD/JPY

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The Japanese Yen might not see a strong 2025 after all.

Analysts at ING Bank see a route to 160 in Dollar-Yen (USD/JPY) over the next year, disappointing a consensus looking for Yen outperformance.

Currently, market forward points show the market looks for USD/JPY to move towards the mid-140s next year, in a steady trend of Yen appreciation.

Part of this assumption rests on the view that the Bank of Japan will raise interest rates in a world where everyone else is cutting, creating a favourable interest rate convergence story for JPY.

ING's economists maintain that the Bank of Japan will hike by 25bp on 20 December, and further hikes will follow, but these won't put a rocket under the Yen as was seen earlier this year when the Bank raised rates for the first time in years.

"Recall that it was the hawkish hike in July that prompted the disorderly unwind of the carry trade. This time, however, the market is not as short yen as it was in July and the BoJ has probably learned its communication lesson. We do, however, look for two further 25bp rate hikes next year," says ING.

Bank of Japan hikes won't be able to close the gap with U.S. yields, which will remain elevated as the Trump 2.0 era commences.

"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%. 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," says ING.

The bank forecasts USD/JPY at 153 in one month, 155 in three months, 157 in six months and 160 in 12 months.