UBS strategists project the dollar-yen pair could reach 175 by year-end if oil disruptions persist, signaling potential 175 yen strength. The analysis, published Wednesday, warns that aggressive yen intervention to curb inflation might backfire, pushing the currency lower as policymakers face a 150 dollar oil price scenario. Shahab Jalinoos and colleagues argue that fiscal measures like energy subsidies may become more critical than FX intervention to address stagflation. This outlook comes as dollar-yen broke above 160 for the first time since 2024, prompting warnings from Japanese officials including Atsushi Mimura and Kazuo Ueda about decisive policy responses.

The strategists see markets concluding policymakers lack intent to halt yen weakness, with terms-of-trade shocks amplifying dollar-yen gains.