Title: US Dollar to Yen Forecast: Medium-Term Trends Point Toward USD Weakness, Says RBC
Original Author: Tim Clayton
Source: ExchangeRates.org.uk
URL: https://www.exchangerates.org.uk/news/43522/2025-07-13-us-dollar-to-yen-forecast-usd-has-further-to-fall-mediumterm-at-133-say-rbc.html
As of mid-2025, the foreign exchange market is witnessing pivotal shifts in sentiment regarding the US dollar to Japanese yen (USD/JPY) currency pair. Analysts from RBC Capital Markets have released a nuanced perspective, forecasting that the US dollar will weaken further against the Japanese yen in the medium term, targeting a level of 133. This viewpoint is based on a combination of macroeconomic trends, monetary policy expectations, and investor positioning.
Below is a detailed breakdown of the forecast, supported by analysis from RBC and wider market data.
The USD/JPY Pair: Current State and Historical Context
The USD/JPY exchange rate has had a volatile journey over the past couple of years:
– In 2022, the USD surged to multi-decade highs against the yen, peaking above 150 as the Federal Reserve aggressively raised interest rates.
– The Japanese yen, in contrast, remained under pressure due to the Bank of Japan (BoJ)’s continuation of ultra-loose monetary policies.
– Entering 2024 and 2025, the dynamics began to shift. US inflation began to moderate, reducing pressure on the Federal Reserve to maintain high interest rates.
– Simultaneously, the BoJ began laying the groundwork for policy normalization, subtly tightening its position and signaling potential interest rate hikes.
In July 2025, the USD/JPY is hovering around the 140 mark, down from its highs but still far from its anticipated medium-term target of 133, as projected by RBC.
Key Drivers Behind the USD Weakness Outlook
RBC Capital Markets outlines several factors contributing to its bearish view on USD/JPY:
1. Diminishing US Yield Advantages
– One of the major drivers of USD strength in 2022–2023 was the wide interest rate differential between the US and Japan.
– As inflation slows and economic growth moderates, expectations for future US rate hikes are diminishing.
– The Federal Reserve has indicated a possible end to its hiking cycle, focusing more on maintaining economic stability.
– Lower prospective US yields make the USD less attractive to investors seeking return, reducing demand for the currency.
2. Shifting Bank of Japan Policy
– The BoJ under Governor Kazuo Ueda is slowly beginning an exit from its ultra-accommodative stance.
– In recent months, the BoJ has allowed greater flexibility in yield curve control and signaled openness to a gradual policy normalization.
– Even minor increases in Japanese interest rates could reshape capital flows and strengthen the yen, particularly given Japan’s position as a major capital exporter.
3. Valuation Metrics and the USD’s Overbought Position
– From a valuation standpoint, RBC notes that the USD remains overvalued against the yen.
– Using real effective exchange rate (REER) metrics, the dollar is still trading significantly above its long-term average against the yen.
– Currency adjustments to realign with fair value typically play out over the medium term, aligning with RBC’s 133-target.
4. Technical Signals and Positioning
– Technical chart patterns, including resistance levels and moving average crossovers, suggest a weakening trend for USD/JPY.
– Additionally, speculative positioning in the futures markets shows an overcrowded long-dollar trade.
– A reversal of these positions could accelerate USD losses as traders unwind leveraged bets.
Fed vs. BoJ: Diverging Paths Create Volatility
The divergence in the policy outlook between the Federal Reserve and the Bank of Japan is another cornerstone of RBC’s analysis. Here’s a closer look:
Federal Reserve Outlook
– The Fed has tightened aggressively between 2022 and 2024
Explore this further here: USD/JPY trading.