How will the Japanese Yen exchange rate move in 2026? Is it a good time to buy Japanese Yen? In-depth analysis and investment strategies

Is the Japanese Yen Still Worth Investing In? Look at These Three Signals First

When it comes to investing in the Japanese Yen, many people are asking: Can I buy Yen now? What will the exchange rate look like next year? This question isn’t easy to answer directly, but we can assess it from three angles: central bank policies, technical analysis, and institutional forecasts.

Recently, the Yen’s performance has indeed been less than ideal. Since October 2025, the USD/JPY exchange rate has been climbing steadily, breaking through 157 in November, hitting a 34-year low. But this is a good opportunity to evaluate the Yen’s investment value — the Yen may already be oversold.

Why is the Yen Depreciating? The Logic Behind the Downward Trend

Since early 2024, the Yen has experienced nearly 10 months of depreciation. This isn’t accidental; there are clear economic reasons behind it.

Interest rate differentials are the core driver. The Bank of Japan has maintained an ultra-loose monetary policy for a long time, with policy rates far below the Federal Reserve. Against the backdrop of high US interest rates, arbitrage traders continue borrowing low-interest funds in Japan and investing in high-yield US assets, creating persistent selling pressure on the Yen.

Policy expectations show a clear contrast. In January 2025, the BOJ sharply raised interest rates to 0.5%, the largest single hike since 2007. The market initially anticipated further tightening, but the BOJ held steady in six meetings from January to October, gradually dispelling expectations of rate hikes. Meanwhile, the Fed began a rate-cut cycle in September, widening the US-Japan interest rate gap further.

Fiscal concerns raise worries. Japan’s new government has implemented aggressive fiscal expansion policies, raising doubts about the sustainability of government debt and weakening the Yen’s attractiveness.

These factors combined caused the USD/JPY to rise from around 140 at the start of 2024 to over 157 by the end of 2025. However, it’s worth noting that most institutions believe this decline has gone too far.

Will the Yen Rebound in 2026? What Do Institutions Say?

Morgan Stanley’s latest report offers an optimistic outlook. The bank’s strategists point out that as signs of a slowdown in the US economy become evident, if the Fed begins a series of rate cuts, the Yen could appreciate nearly 10% against the dollar in the coming months.

More importantly, Morgan Stanley believes that the current USD/JPY rate has deviated from its fundamental value. As US Treasury yields decline, dragging down fair value, this deviation is expected to correct in the first quarter of 2026. According to their calculations, USD/JPY could fall back to around 140 yen early next year.

However, the report also warns: If the US economy recovers in the second half of next year and arbitrage trading heats up again, the Yen could face a new round of depreciation pressure.

Four Key Factors to Watch for Yen Movement

If you want to invest in Yen, you must monitor these four economic indicators:

1. Central Bank Policy Trends
BOJ Governor Ueda recently stated in Congress that the central bank must closely watch the risk of Yen weakness raising import costs. This was interpreted by the market as a signal of potential rate hikes. If the BOJ indeed starts a new rate hike cycle in 2026, the Yen will benefit directly. Conversely, if policy remains unchanged, the rebound will be limited.

2. Inflation Data (CPI)
Japan’s current inflation remains relatively moderate, limiting the urgency for further BOJ rate hikes. If inflation heats up significantly in 2026, it will support rate increases; if inflation continues to fall, market expectations for policy shifts will diminish.

3. Economic Growth Indicators
Japan’s GDP and manufacturing PMI will determine the BOJ’s policy space. Steady economic growth gives the BOJ more reason to normalize policies, which is favorable for Yen appreciation. If the economy remains weak, the BOJ will need to maintain easing, suppressing Yen strength.

4. Global Market Environment
The Yen has traditional safe-haven characteristics. When global risks (geopolitical conflicts, economic crises, etc.) emerge, capital tends to flow into Yen. Additionally, changes in other central banks’ policies also influence Yen movements — the larger the Fed’s rate cuts, the higher the likelihood of Yen appreciation.

Technical Analysis: When to Enter?

From a technical perspective, short-term strategies like shorting USD/JPY on rallies remain relatively prudent. The key risk level can be set at 156.70.

If Japanese authorities intervene in the currency market or the December BOJ meeting confirms a rate hike path, the exchange rate could plummet sharply, targeting 150 or even lower.

Conversely, if these positive factors do not materialize, USD/JPY could still rise. Investors should set stop-loss points according to their risk tolerance.

Should You Buy Yen Now? Investment Advice

For investors with travel or consumption needs in Japan, consider buying in installments. Although the Yen is currently relatively high, if a rebound occurs in the first half of 2026, costs will be higher then. Locking in some exchange rate costs early is not unwise.

For professional forex traders, closely follow key events like central bank meetings and economic data releases. If after the December BOJ meeting rate hike expectations are confirmed, or if Japan announces intervention, it could be a good entry point to short USD/JPY. But always set stop-losses to control risk exposure.

For investors with limited risk appetite, now may not be the best time to rush in. It’s better to wait for more positive signals — such as the BOJ officially starting rate hikes or the Fed clearly signaling a sustained rate cut path.

A Review: The Yen’s Major Fluctuations in the Past Decade

To understand the Yen’s current predicament, we need to look at its past ten years.

After the 2011 earthquake, Japan needed to import large amounts of oil to cover energy shortages, increasing demand for USD and weakening the Yen.

In 2012, Abe took office and launched economic policies, followed by the BOJ’s unprecedented large-scale easing in 2013. Under Governor Kuroda, the BOJ adopted every measure imaginable, injecting the equivalent of $1.4 trillion into the market over two years. The stock market responded positively, but the Yen depreciated nearly 30% in that period.

After the Fed began tightening in 2021, the US-Japan interest rate gap widened further, and Yen arbitrage trading surged. Domestic and foreign investors borrowed Yen to buy bonds, stocks, and high-yield assets, further pushing down the Yen.

In 2023, with a new BOJ governor, market expectations grew that the BOJ would change its ultra-loose policy. As inflation rose above 3% (a 40-year high), expectations for policy adjustment intensified.

2024 marked a turning point. The BOJ raised rates twice in March and July, bringing the policy rate to 0.25%. But since the Fed was also tightening, the US-Japan interest rate gap didn’t narrow significantly, and the Yen continued to weaken. By the end of the year, USD/JPY had broken below 155.

In January 2025, the BOJ made a major move, raising rates by 50 bps to 0.5%. The market initially cheered, and the Yen strengthened, with USD/JPY falling from 158 to 140.876. But this rally was short-lived. As the Fed started cutting rates and the BOJ remained on hold, the Yen turned weaker after May, eventually breaking below 157 to new lows.

Summary: Timing the Yen Investment Window

Despite the short-term persistent widening of the US-Japan interest rate gap troubling the Yen, in the medium to long term, the Yen will eventually return to its fair exchange rate level. The current high of 157 is likely the end of this depreciation cycle.

The investment opportunities in 2026 depend on:

• Confirmation of central bank policy signals: If the BOJ clearly signals rate hikes after the December meeting, the Yen could rebound.
• Fed’s rate cut pace: The more aggressive the cuts, the faster the US-Japan interest rate gap narrows, benefiting the Yen.
• Catalysts from risk events: Any geopolitical or economic crises could trigger safe-haven buying of Yen.

For those interested in Yen investment, it’s advisable to continuously monitor these indicators and develop an investment plan based on your financial situation. No need to rush, but be prepared to act decisively at key moments.