Submillimeter-Wave Limb-Emission Sounder-2 (SMILES-2) is a satellite mission proposed in Japan to probe the middle and upper-atmosphere (20–160 km). The main instrument is composed of 4-K cooled radiometers operating near 0.7 and 2 THz. It could measure the diurnal changes of the horizontal wind above 30 km, temperature above 20 km, ground-state atomic oxygen above 90 km, atmospheric density near the mesopause, as well as abundance of about 15 chemical species. In this study we have conducted simulations to assess the wind, temperature and density retrieval performance in the mesosphere 5 and lower thermosphere (60–110 km) using the radiometer at 760 GHz. It contains lines of water vapor (H2O), molecular oxygen (O2) and nitric oxide (NO) that are the strongest signals measured with SMILES-2 at these altitudes. The Zeeman effect on the O2 line due to the geomagnetic field (B) is considered, otherwise, the retrieval errors would be underestimated by a factor of 2 above 90 km. The optimal configuration for the radiometer’s polarization is found to be vertical linear. Considering a retrieval vertical resolution of 2.5 km, the line-of-sight wind is retrieved with a precision of 2–5 ms− 1 up to 90 km and 10 30 ms− 1 at 110 km. Temperature and atmospheric density are retrieved with a precision better than 5 K and 7% up to 90 km (30 K and 20% at 110 km). Errors induced by uncertainties on the vector B are mitigated by retrieving it. The retrieval of B is described as a side-product of the mission. At high-latitudes, precisions of 30–100 nT on the vertical component and 100–300 nT on the horizontal one could be obtained at 85 and 105 km (vertical resolution of 20 km). SMILES-2 could therefore provide the first measurements of B close to the electrojets’ altitude, and the precision is enough to measure variations induced by solar 15 storms in the auroral regions.