Synopsis:

ANZ maintains its expectation for two more Bank of Japan rate hikes in 2025, bringing the terminal rate to 1%. However, they argue this is unlikely to trigger a meaningful drop in USD/JPY, as global rate differentials and persistent USD strength will continue to support elevated levels.

Key Points:

• BoJ outlook: Two more rate hikes forecasted, reaching a 1% terminal rate by year-end.

• USD/JPY implications: Even with BoJ normalization, rate differentials still favor USD; a return to the 110–130 range is unlikely.

• End-year target: USD/JPY expected to finish in the upper 140s.

• Near-term view: Positive bias on USD/JPY with potential to retest the low 150s, driven by JPY long unwinds.

• Crosses outlook: Safe-haven flows may support the JPY versus AUD and NZD in the short term.

Conclusion:

While the BoJ is expected to continue normalizing policy, ANZ believes structural forces like yield differentials and solid U.S. growth will keep USD/JPY elevated. Near-term dynamics favor a stronger dollar, though the yen may still outperform on risk-off crosses.