What will be the future of the 2026 Japanese Yen exchange rate? Investment banks' forecasts are divided, and USD/JPY may fall into a turbulent whirlpool of volatility.

Entering 2026, the yen exchange rate trend is becoming a focal point for global investors. Under the combined influence of the Federal Reserve’s rate cut policies, expectations of Bank of Japan rate hikes, and changes in Japan’s political landscape, major investment banks are showing rare and extreme divergence in their judgments on USD/JPY.

Bearish Camp: Fiscal Expansion as the Main Driver of Depreciation

J.P. Morgan’s research team believes that the expansionary fiscal policies implemented by Japanese Prime Minister Sanae Yoshimura will become the main drag on the yen. Since rate hike expectations have been fully priced into the market, the yen faces further depreciation risks. The bank forecasts that USD/JPY will surge to around 157 in early 2026 and reach approximately 164 by the end of the year.

Barclays shares a similar view. They believe that the combination of Japan’s new government’s loose fiscal stance and moderate monetary policy will continue to suppress the yen’s performance, with an expected year-end USD/JPY rate of 158. This suggests that the yen’s depreciation trend may persist throughout the year.

Bullish Camp: Exchange Rate Intervention + Policy Adjustments as New Opportunities

Nomura Securities presents a different logic. The bank points out that excessive yen depreciation will intensify inflationary pressures, posing a challenge to Prime Minister Yoshimura’s administration. Therefore, the government’s tolerance for further BOJ rate hikes may increase. At the same time, once USD/JPY approaches the psychological threshold of 160, market expectations for exchange rate intervention will significantly heat up, effectively curbing further yen depreciation. Nomura expects USD/JPY to retreat to around 140 by the end of the year.

Citibank is also optimistic about the yen’s prospects. As the BOJ steadily raises rates while the Fed continues to cut rates, the widening interest rate differential will support yen appreciation. The bank forecasts USD/JPY to fall to 142 by the end of 2026.

Neutral Outlook: Volatility Will Become the Norm

Morgan Stanley sketches a “rise first, fall later” scenario. The bank believes that a slowdown in the US economy will push USD/JPY down to 140 in the first quarter, but as US economic data improves in the second half of the year, arbitrage trading may restart, pressuring the yen back down to around 147.

Bank of America predicts the opposite trend. They believe USD/JPY will break above 160 in the first quarter and then gradually fall back, stabilizing around 155 by year-end.

2026 Yen Exchange Rate Outlook: Investment Decision Guide

The divergent forecasts from different institutions reflect a reality: the yen exchange rate will be jointly influenced by multiple factors—Japan’s fiscal policy trajectory, the pace of BOJ rate hikes, the Fed’s rate cut steps, and government expectations of exchange rate intervention will all be key variables.

USD/JPY may fluctuate between 155 and 160, even experiencing dramatic “roller coaster” volatility. For traders, strategies such as shorting at high levels and going long at lows may be the best way to cope with this uncertainty. The key is to closely monitor the progress of Japan’s new government’s fiscal policies and the BOJ’s rate hike movements, as these will directly impact the medium-term direction of the yen exchange rate.