Investing.com – UBS raised its forecast for the period in a note on Thursday, expecting significant exchange rate fluctuations in the coming year.

The bank currently forecasts that the currency pair will reach 155 by December 2024, then 152 in March 2025, 150 in June, and 147 in September.

By the end of 2025, UBS plans to reach 145, which is an adjustment to previous predictions of 147, 143, 140 and 138, respectively.

According to UBS, an raise to 158-160 is possible in the miniature term, especially if the US 10-year bond yield rises another 30-40 basis points, potentially reaching 4.8%.

“Based on a sensitivity analysis conducted over the last three years, a 10-bp widening of the US-Japan 10-year bond yield coincides with a one-yen increase in the USDJPY exchange rate,” UBS explained.

If U.S. bond yields do indeed rise to 4.8%, the bank says the USD/JPY pair could temporarily reach 160, although it considers this level “unsustainable” and likely to prompt Japan to intervene, as seen during similar highs in early 2024 r.

UBS analysts believe that in 2025 the USD/JPY pair will be under downward pressure, which will be influenced by several factors. The key factor is the expected cycle of Fed interest rate cuts, which, according to UBS, will lead to lower yields in the US.

“We believe that current USDJPY levels are higher than justified by yield differentials,” UBS notes, estimating that the currency pair should head towards 145-146.

Additionally, trade tensions and the Trump administration’s potential focus on a stronger yen could reinforce this trend.

For investors, UBS suggests that any short-term rally towards 160 could be an opportunity to “tactically sell USDJPY.” Longer term, UBS sees multiple forces supporting the downtrend, with USD/JPY likely to end 2025 at 145.