MUFG expects USD/JPY to move back below 160 over time, with suspected intervention and faster Bank of Japan rate hikes increasing the risks for Dollar buyers.

The Japanese Yen rallied sharply on Thursday, with USD/JPY falling from close to 164 to below 158 before recovering above 160 in Asian trading.

The move came amid widespread speculation that Japanese authorities had intervened in the currency market ahead of the Bank of Japan meeting. Intervention was not officially confirmed, although reports also suggested that the US had conducted a rate check on USD/JPY.

US Treasury Secretary Scott Bessent added to the pressure by describing the Yen as “very undervalued”, while Japan’s top currency official Atsushi Mimura acknowledged concerns over the recent weakness without commenting directly on intervention.

MUFG said the scale of the move was similar to previous episodes of official action.

“The scale of the USD/JPY move is quite similar to past Yen selling interventions including in 2024, but may have a bit more to go based on historical experience of perhaps more than a 5% move,” the bank said.

USD/JPY fell by more than five Yen during Thursday’s session before recovering part of the decline.

MUFG remains cautious on the pair heading into the weekend, particularly with speculative positioning still heavily tilted against the Yen.

“With JPY net shorts still elevated close to all-time highs, authorities may be looking to flush out these positions,” the bank said.

It added that traders were likely to become “more cautious on the near-term bets on JPY given the balance of risks.”

That said, MUFG does not believe intervention alone will be enough to produce a lasting reversal.

“Ultimately it boils down to fundamentals over the medium term,” the bank said. “For USD/JPY to achieve a more durable retracement lower, it would require real interest rates to rise more substantially, and for market concerns around fiscal sustainability to be addressed.”

USD/JPY Forecast: MUFG Targets a Move Below 160

MUFG expects the Bank of Japan to leave rates unchanged at its latest meeting, although dissenting votes in favour of a hike could strengthen expectations of earlier tightening.

The bank’s global and Japan teams forecast BOJ rate increases in September 2026 and January 2027, a faster path than markets currently price.

“This in part underpins our view for USD/JPY to move lower below the 160 levels over time,” MUFG said.

Governor Kazuo Ueda’s guidance will now be closely watched for any indication that policymakers are becoming more willing to accelerate the pace of tightening.

USD/JPY remains well above its January levels despite the latest sharp reversal.

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