2026 Yen Market Bull-Bear Battle: Institutional Predictions Diverge, Where Will the Exchange Rate Go

In 2025, the USD/JPY experienced intense volatility, driven by the Federal Reserve’s rate cuts, the Bank of Japan’s rate hikes, and changes in Japan’s political landscape. As we enter 2026, Wall Street’s outlook on the yen shows a clear split, with both bulls and bears holding firm opinions. Forecast ranges from 140 to 164 reflect market uncertainty.

Bearish Camp: Fiscal Stimulus Will Increase Yen Depreciation Pressure

Led by JPMorgan Chase and Barclays, the bearish camp believes that Japan’s new government’s expansionary fiscal policies will be the main drag on the yen. JPMorgan Chase points out that Prime Minister Sanae Yoshimura’s proactive fiscal measures will continue to push down the yen’s valuation, and the market has already priced in the Bank of Japan’s rate hike expectations, further supporting a depreciation trend. The bank forecasts USD/JPY will reach 157 by early 2026 and surge to 164 by year-end.

Barclays’ view is even more pessimistic, believing that the combination of expansionary fiscal policy and dovish monetary stance will continue to suppress the yen, with USD/JPY expected to break through 158 by year-end. The consensus among these institutions is that as long as policy directions remain unchanged, the broad trend of yen depreciation will be difficult to reverse.

Bullish Camp: Rate Hike Cycle and Intervention Expectations Support Yen Rebound

Contrary to the bears, Nomura Securities and Citibank believe there is significant potential for a yen rebound. Nomura notes that further yen depreciation would worsen inflationary pressures and create political stress for the Takashi administration, increasing government support for the central bank’s rate hikes. Additionally, if USD/JPY approaches 160, forex intervention expectations will rise, effectively limiting yen depreciation. Based on this, Nomura forecasts USD/JPY will fall back to 140 by the end of 2026.

Citibank’s analysis focuses on narrowing interest rate differentials. As the Bank of Japan steadily hikes rates while the Federal Reserve continues to cut rates, the shrinking rate gap will attract capital flows back into Japan, supporting yen appreciation. Its forecast for year-end USD/JPY is 142.

A Third Perspective: Opportunities for Range Trading

Morgan Stanley and Bank of America predict that the yen will exhibit range-bound movements. Morgan Stanley believes that in the first half of 2026, US economic slowdown will push USD/JPY down to 140, but economic recovery in the second half will reignite arbitrage trades, leading to a rebound to 147 by year-end. Bank of America’s forecast is more volatile, expecting a spike to 160 in Q1, followed by a gradual decline, stabilizing around 155 at year-end.

Investment Insights Amidst Mixed Signals

The direction of the yen in 2026 will depend on three key variables: the strength of Japan’s fiscal policies, the pace of Bank of Japan rate hikes, and the Federal Reserve’s rate cut trajectory. The forecast range of 140 to 164 among various institutions suggests that USD/JPY may once again exhibit the high volatility seen in 2025. Investors can leverage technical and fundamental analysis to seize trading opportunities, whether shorting on rallies or going long on dips.