JPY 2026 Outlook: The Exchange Rate Puzzle Amid Bull and Bear Battles

In 2025, the USD/JPY experienced intense volatility. As we enter 2026, this battle between bulls and bears will intensify further. Major Wall Street investment banks show significant divergence in their outlooks for the yen, with the most optimistic and most pessimistic forecasts differing by over 20 yen, marking a rare occurrence in recent years.

Bearish Camp: Policy Stimulus as the “Killer” of the Yen

The power of monetary easing should not be underestimated. JPMorgan warns that expansionary fiscal policies led by the new government will become the main force suppressing the yen. Since the market has fully priced in the Bank of Japan’s rate hike expectations, the support from monetary policy is limited, and yen depreciation has become a certainty. The bank predicts USD/JPY will reach 157 at the start of the year and soar to a critical level of 164 by year-end.

Barclays also leans bearish, believing that the government’s accommodative stance combined with the cautious approach of the central bank creates a “double whammy,” with USD/JPY expected to rise above 158 by the end of 2026.

Bullish Camp: Dual Support from Rate Hike Expectations and Intervention Anticipation

Optimistic voices about the yen are also loud. Nomura Securities points out that if the yen continues to depreciate, it will trigger inflation concerns, which in turn will pressure the government, forcing authorities to tolerate higher rate hikes by the central bank. Notably, once USD/JPY approaches the 160 level, market expectations of official intervention will surge, thereby curbing further yen weakness. Based on this, Nomura expects USD/JPY to fall back to 140 by the end of the year.

Citi also sees potential in the yen, emphasizing that as the Bank of Japan’s gradual rate hike cycle unfolds while the Federal Reserve remains dovish, the widening interest rate differential will strongly support the yen. They forecast USD/JPY will decline to 142 by the end of 2026.

Swing Traders: “V-Shaped” or “Inverted V-Shaped” Movements with a Strategy of Attack and Defense

Some institutions believe that 2026 will show a segmented trend. Morgan Stanley predicts that with the US economy slowing down and the Fed cutting rates, USD/JPY will hit a low of 140 in the first quarter. However, as signals of US economic recovery emerge mid-year, arbitrage trading will restart, leading to a renewed sell-off of the yen, with a rebound to 147 by year-end.

Bank of America is optimistic about a rise followed by a fall, believing that USD/JPY will break above 160 in the first half of the year, then continue to retrace, ultimately stabilizing around 155.

Investment Insights

The yen exchange rate in 2026 will be a microcosm of the global tug-of-war between bullish and bearish forces. Policy variables, economic data, and intervention expectations intertwine, making the yen face not a one-way trend but a volatile cycle full of opportunities and traps. For investors, the key is to identify common points in institutional forecasts—the potential lows at the start of the year and the ultimate trend at year-end—and to adopt a strategy of buying on dips or reducing holdings on rallies.