## 2026 Yen to USD Outlook: Severe Institutional Divergence, Is It Bullish or Bearish?

Since entering 2025, the tug-of-war between the Yen and USD has never ceased. The Federal Reserve's rate cut cycle has begun, the Bank of Japan has accelerated rate hikes, and domestic political uncertainties have frequently emerged—these factors combined make the outlook for the USD/JPY( exchange rate in 2026 highly uncertain, with major Wall Street institutions showing unprecedented divergence.

## Can Fiscal Stimulus Suppress the Yen to USD Exchange Rate?

JPMorgan's view directly addresses the core issue: Japan's new government's aggressive fiscal expansion policy will be a key variable influencing the short-term trend of the Yen against the USD. They believe that the market has largely priced in the Fed's rate hike expectations, and the pressure for Yen depreciation will actually increase. The bank forecasts USD/JPY will surge to 157 in early 2026 and potentially reach 164 by the end of the year.

Similarly, Barclays Bank shares a bearish outlook on the Yen to USD future performance. They analyze that the new government's proactive fiscal policies combined with a relatively loose monetary policy make it difficult to reverse the Yen's depreciation trend in the short term. Therefore, they predict USD/JPY will reach 158 by the end of 2026.

## Can Rate Hikes and Forex Interventions Reverse the Trend?

However, there is no consensus between the bulls and bears. Nomura Securities offers a completely opposite judgment: although further Yen depreciation may push up prices and exert pressure on the government, this pressure could instead give the Bank of Japan more room to raise interest rates. More importantly, once USD/JPY approaches the 160 level, market intervention expectations will rise, potentially hindering the Yen's depreciation momentum. Based on this, Nomura expects USD/JPY to adjust to 140 by the end of 2026.

Citi's logic is more straightforward—the divergence in monetary policies between Japan and the US is the decisive factor. As the Bank of Japan steadily advances rate hikes while the Federal Reserve maintains easing, an appreciation trend for the Yen is expected to emerge, and USD/JPY may fall back to around 142 by the end of 2026.

## Will the "Roller Coaster" Market Repeat?

Even more interestingly, some institutions predict that USD/JPY will exhibit a "fall then rise" or "rise then fall" V-shaped or inverted V-shaped pattern.

Morgan Stanley believes that in Q1 2026, USD/JPY will fall to 140 due to US economic slowdown and Fed rate cuts, but once the US economy rebounds in the second half, arbitrage trading will re-activate, and the Yen will come under renewed pressure, possibly rebounding to around 147 by year-end.

Bank of America offers another hypothesis: USD/JPY will initially break above 160 in Q1, then continue to decline under various constraints, ultimately stabilizing around 155 by the end of the year.

## How Should Investors Respond?

Based on these forecasts, USD/JPY in 2026 is highly likely to replicate the "roller coaster" pattern seen in 2025, with the significant divergence among institutions reflecting market uncertainty about policy variables. The tug-of-war between USD depreciation and Yen appreciation ultimately depends on three major variables: Japan's fiscal-monetary policy mix, the Fed's rate cut pace, and forex market intervention expectations. Investors can adapt flexibly by adopting strategies to short on rallies or buy on dips according to the latest developments, but must remain vigilant about risks from sudden policy shifts.