USD/JPY touched its lowest level in over four months at 130.60. Economists at UBS expect the pair to extend its decline towards 125 as the greenback will remain under pressure.

Tightening outside the US adds to downward pressure on the US Dollar

“We had been expecting the Yen to appreciate modestly against the US currency through next year, with USD/JPY going from 133 at present to around 125 by the end of 2023. The question for markets now will be whether the Bank of Japan will allow yields to rise further when the new governor takes over from Kuroda in April. This could put additional upward pressure on the Yen.”

“We believe that the US Dollar will weaken in 2023, given that the US Federal Reserve is closer to an end of its tightening cycle that other major central banks.”