USD/JPY: Westpac forecasts fall to 146 by end Of 2028 without fed rate Cut

From /

USD/JPY: Australian bank Westpac has published one of the most radical medium-term forecasts for the USD/JPY pair. Analysts expect that after a possible short-term jump to162, the dollar will begin a multi-year structural decline, reaching146by December 2028.

The main intrigue is that this scenario does not rely on aggressive easing by the Fed.

Trajectory of movement: step-by-step analysis

The bank's forecast assumes a gradual but inexorable devaluation of the dollar:

  • Short term (September):Level test162. In July, the pair was already trading at163,9798, so this is seen as a retest of resistance rather than a new all-time high.
  • Midterm (2027):Reduction to160(December), then a gradual slide towards158(June),156(September) and154(December).
  • Long Term (2028):Surprisingly stable rate of decline -152. 150. 148and the final goal146in december.

The overall scale of the strengthening of the Japanese currency is impressive: a fall from the peak (162) to the goal (146) is almost10%, which is equivalent to a strengthening of the yen by approximately11%.

The yield paradox: strengthening without a dovish Fed

Typically, the weakening of the dollar against the yen is associated with a decrease in interest rates in the United States. However, Westpac's model breaks this logic:

  • Fed Rate:The bank expects the federal funds rate to remain unchanged at3,625%throughout the entire period.
  • Treasury yield:The yield on 10-year bonds will fall only slightly - from4,65% to 4,55%, and by the end of 2028 it will even grow to4,85%.

This means that Westpac is pricing in a fundamental change in the very nature of the currency pair. The interest rate gap between the US and Japan will no longer be the main driver of USD/JPY growth.

Why is this happening?

As Fed rates remain high, the dollar's collapse must be explained by Japanese internal factors or global capital reallocation. While the Westpac report does not provide a detailed explanation of the catalysts, market logic points to the following reasons:

  1. Fatigue from interventions:As noted earlier, one-time interventions by the Ministry of Finance can give a sharp jump, but they do not solve the problem of the rate gap for a long time. The market adapts in a few weeks.
  2. Return of Japanese capital:As domestic yields rise (JGBs reach levels attractive to insurers), Japanese funds begin to massively repatriate money home by selling foreign assets.
  3. Political will:The government's gradual abandonment of protecting the weak yen in favor of supporting exporters in favor of fighting inflation.

Nearby triggers

The next test for this model will be the end of the week data:

  • Japan:Friday's household spending data. If consumption continues to rise, the Bank of Japan's case for raising rates will strengthen.
  • USA:Employment report (Non-Farm Payrolls). Westpac forecasts strong job growth70 000(against market consensus in55 000). Typically, such data strengthens the dollar, but if the market ignores them and the rate continues to fall to 160–158, this will be a serious signal of a trend change.

Outcome:Westpac's forecast is a bet that Japan is entering a monetary policy normalization cycle that will last for years. For traders, this means a shift from trading on Fed news to tracking the BOJ's every move and Japanese capital flows.

Leave a comment

Scroll up