USD/JPY Forecasts Split: BNP Sees 163 as Crédit Agricole Targets 150

The Japanese Yen’s outlook divides banks as BNP sees US rates limiting gains, while Crédit Agricole expects a smaller US advantage to aid recovery.

The US Dollar to Yen exchange rate was trading at ¥157.73 on Wednesday, slightly lower after approaching 158 at Tuesday’s close.

For end-2027, BNP Paribas forecasts 163, while Crédit Agricole expects 150: two projections that place the Japanese currency on opposite sides of its current level.

BNP sees Japanese hikes falling short

BNP Paribas’s currency assessment is explicit: “The USD/JPY appreciation would continue but at a more moderate pace, with the BoJ still behind the curve despite its hikes.”

Its forecast puts Japan’s policy rate at 2% by end-2027, so its bearish yen view does not depend on the BoJ abandoning normalisation.

BNP’s economists write: “Higher inflation and production costs associated with the energy shock are expected to weigh on the economy’s overall performance. On the other hand, the latter is supported by fiscal policy and AI-related investment.”

Higher Japanese rates need not strengthen the yen if investors still regard US assets as more attractive.

BNP also sees pressures within Japan’s bond market: “Japan is facing long-term rates pressure, illustrated by historically high 10- and 30-year yields, probably fueled by the level of public debt and the pace of monetary adjustment.”

BNP expects resilient US growth and persistent inflation: “This apparent resilience to the uncertainty, tariff and energy shocks, together with above-trend productivity growth, masks K-shaped growth, driven by investment linked to AI-optimism and consumption by the wealthiest amid a wealth effect (historically high stock market valuations).”

“The labour market is showing clear signs of improvement that should bring the unemployment rate down toward 4.0%.”

“Given this shift in price and employment risks amid dynamic growth, the FOMC proceeded with a first rate hike at September’s meeting and we expect two further 25bp increases in December 2026 and January 2027, bringing the Fed Funds target range at 4.25% – 4.50%.”

BNP’s table keeps the upper end of that range at 4.50% throughout the rest of 2027, maintaining a substantial gap over Japanese policy rates even after further BoJ increases.

BNP expects the Euro and Pound Sterling to gain against the US Dollar over 2027, making the yen an exception to its broader view.

Crédit Agricole expects the US advantage to diminish

Crédit Agricole identifies “Legislative gridlock in DC and fading fiscal support in the US after the midterms” as one reason US outperformance could become harder to sustain.

It also envisages portfolio rebalancing after “Slowing US AI investment & AI stock market correction”, alongside softer US consumer demand.

On the other side of the comparison, its central scenario includes “Lower energy costs-a boon for economies of energy importers in Europe/ Asia”.

Japan would benefit both from a smaller energy burden and, in the bank’s assessment, fiscal support that could encourage investors to bring money home.

Its policy scenario includes “Fiscal dominance in the US and Fed rate cuts in H227”, allowing government financing pressures to influence monetary policy.

That contrasts with BNP’s unchanged US rate over that period.

A smaller US rate advantage would reduce one incentive to hold dollar assets rather than yen assets. The accompanying growth and portfolio assumptions matter because a lower interest-rate gap alone does not ensure capital will return to Japan.

The bank treats a persistent energy shock and a disorderly end to the AI boom as risks to its central scenario, rather than assuming that every form of US weakness would produce an orderly dollar decline.

The BoJ’s next decision

Japan’s September inflation figures showed prices excluding fresh food rising 2.1% annually.

Excluding energy as well, inflation was 2.4%, leaving broader price pressure for the BoJ to assess.

The BoJ’s 29-30 October meeting will bring an updated outlook against that backdrop.

The US side remains equally important: Mizuho has argued that lower US yields could support yen gains without requiring an aggressive Japanese hiking cycle.

What This Means for USD/JPY

A BoJ hike by itself would not settle the argument: the accompanying inflation outlook and the expected gap with US rates would still matter.

Crédit Agricole’s 150 view rests on a more favourable combination for Japan, with easing energy pressure, less dominant US growth and a narrower rate gap. Those conditions would support a recovery beyond a brief response to a central-bank announcement.

A persistent energy shock would be particularly awkward for Crédit Agricole’s recovery case, weakening an important source of relief for Japan. The BoJ’s next inflation outlook may clarify how much of that burden it expects households and businesses to absorb.