Author: James West, exchangerates.org.uk
Original article link: 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
Title: US Dollar Could Fall Further Against Japanese Yen, Targeting 133 Medium-Term: RBC
The US Dollar (USD) has demonstrated strength for much of 2024 and early 2025, bolstered by higher interest rates and steady performance in the US economy. However, analysts at RBC Capital Markets have now adjusted their forecast for the USD/JPY pair, signaling potential weakness for the greenback going forward. RBC expects a medium-term retreat for the US Dollar against the Japanese Yen (JPY), with a projected target of 133, representing a notable decline from recent trading levels.
Here, we provide an in-depth analysis of the report published by James West at Exchange Rates UK and elaborate on key factors influencing the USD/JPY outlook. We also examine RBC’s position, fundamental drivers, and broader implications for forex markets.
Key Highlights:
– RBC Capital Markets predicts the USD/JPY exchange rate will fall to 133 in the medium term
– Continued narrowing of policy divergence between the Federal Reserve and the Bank of Japan (BoJ) is a central driver
– Japan’s improved inflation outlook and changing perceptions of monetary policy in Tokyo support the Yen
– The US Dollar’s appeal may erode as the Fed nears or initiates rate cuts in the second half of 2025
– Current market behavior reflects recalibrations based on revised interest rate expectations
Current USD/JPY Market Behavior
As of mid-July 2025, the USD/JPY pair has been trading around the 140–145 range, reflecting a decline from the 155 peak seen earlier this year. This change stems from shifting macroeconomic conditions and a realignment of central bank expectations on both sides of the Pacific.
The dollar’s earlier strength was largely supported by:
– Higher yields in the US driven by an extended rate hike cycle from the Federal Reserve
– Stronger-than-expected economic indicators out of the US including GDP growth, employment data, and consumer spending
– Persistent divergence in monetary policy between the Fed and more dovish central banks such as the BoJ
However, this narrative is beginning to shift.
Factors Supporting Yen Strength and Weighing on the Dollar
RBC identifies several macroeconomic and monetary policy themes that contribute to their revised medium-term USD/JPY forecast of 133.
1. Monetary Policy Convergence:
– The BoJ has gradually been distancing itself from its long-running ultra-loose monetary policy. While not aggressively tightening, signs of policy normalization are emerging.
– Inflation in Japan has picked up in the aftermath of sustained cost pressures and wage growth initiatives pushed by the Japanese government.
– A firmer inflation outlook gives the BoJ scope to slowly raise interest rates or reduce monetary stimulus.
– Meanwhile, the Federal Reserve is drawing closer to the end of its tightening cycle. There are increasing expectations for rate cuts starting in late 2025 as inflation draws closer to its 2% target.
2. Decline in US Yield Advantage:
– The attractiveness of the US Dollar has long been supported by its interest rate premium.
– As yield spreads begin to tighten between US and Japanese government bonds, the Dollar’s edge erodes.
– RBC expects this repricing of interest rate expectations to drive capital flows toward the Yen, especially among investors seeking regions with improving macro dynamics.
3. Changing Market Sentiment:
– There has been a noticeable shift in market sentiment toward the Japanese Yen, traditionally seen as a safe haven in turbulent times.
– Increases in foreign direct investment into Japan and revival in consumption have improved Japan’s economic profile, making the Yen more attractive to institutional investors.
– Moreover, the weakening USD is consistent with
Explore this further here: USD/JPY trading.