J.P. Morgan has adjusted its near-term forecast for the Japanese yen due to political uncertainty, estimating USD/JPY at 146 in the third quarter. The forecast anticipates the currency pair to decrease to 142 by the end of the year and to 139 by the second quarter of 2026.
Within the G10 currencies, the yen was the sole currency downgraded. J.P. Morgan retained its euro forecasts at 1.20 for EUR/USD in Q4 and 1.22 by mid-2026, with anticipated influences from softer U.S. data or changes in Federal Reserve policy.
Strategists’ Recommendations
Strategists recommend a short position on the U.S. dollar against the euro, commodity currencies, and the yen as a defensive measure. They also suggest being overweight on Scandinavian currencies relative to the euro based on valuation, and express a bearish stance on sterling due to fiscal and growth issues. Favour is shown towards emerging-market currencies, particularly those in the EMEA region.
Given the political uncertainty in Japan, with snap elections now called for October 2025, we see continued yen weakness in the coming weeks. The Bank of Japan also reinforced this view by holding rates steady in its July 2025 meeting, widening the policy gap with other central banks. Traders should consider buying near-term USD/JPY call options targeting the 146 level, as this outlook is likely to hold through the third quarter.
We are seeing signs of a slowing U.S. economy, as the July 2025 jobs report showed weaker-than-expected hiring and inflation has cooled to 2.8%. This increases the odds of a Federal Reserve pivot, making long euro positions attractive. Consequently, buying EUR/USD call options with expirations in the fourth quarter to target the 1.20 level appears to be a solid strategy.
US Dollar and Commodity Currencies
This broad-based U.S. dollar weakness should also benefit commodity currencies, as we’ve seen prices for industrial metals and oil remain firm throughout 2025. This supports maintaining short U.S. dollar positions against currencies like the Australian and Canadian dollars. Using futures or options to express this view allows for participation in the trend while managing risk.
Sterling remains a clear underperformer due to persistent domestic issues, including a reported economic contraction in the second quarter of 2025 and a widening budget deficit. These fundamental growth and fiscal concerns suggest further downside is likely. Traders could look at buying puts on GBP/USD or establishing bearish positions in EUR/GBP.
On a relative basis, Scandinavian currencies look undervalued against the euro, presenting opportunities for long positions in pairs like NOK/EUR. We also see strength in emerging market currencies, particularly in the EMEA region where growth differentials are favorable. Looking back at the volatility in the Turkish lira in 2023 and 2024, the current stability presents tactical opportunities for those with a higher risk appetite.
