Uncertain yen trend in 2026? USD/JPY may fluctuate between 157-142

2025 has already been a year of intense yen volatility, with USD/JPY fluctuating amid the Federal Reserve’s rate cuts, the Bank of Japan’s rate hikes, and political changes. As we enter 2026, how will this “exchange rate game” unfold? Wall Street institutions have given very different answers.

Fiscal Stimulus vs. Central Bank Tightening, Yen Under Pressure Prevails

Analysts from JPMorgan Chase and Barclays agree: Japan’s new government’s expansionary fiscal policies will be the key factor suppressing the yen.

Prime Minister Sanae Yoshimura’s proactive fiscal measures aim to stimulate economic growth, but the side effects are obvious—such policies tend to raise inflation expectations domestically, thereby weakening the yen’s attractiveness in international forex markets. More challenging is that market expectations for BOJ rate hikes have been fully priced in, leaving limited room for further increases, making it difficult to provide effective support for the yen.

Against this backdrop, JPMorgan Chase forecasts USD/JPY will rise to 157 by early 2026 and further climb to 164 by year-end. Barclays’ outlook is more moderate, expecting it to rise to 158 by the end of the year.

Diverging Monetary Policies May Bring Reversal Opportunities

However, optimists are not absent. Nomura Securities and Citibank believe that as the Fed continues to cut rates and the BOJ gradually hikes, the divergence in monetary policies will support yen appreciation.

Nomura’s logic is that further yen depreciation would worsen Japan’s import prices, triggering more severe inflation pressures, which would pose a significant challenge to the government, forcing policymakers to be more tolerant of rate hikes. Meanwhile, once USD/JPY approaches the psychological level of 160, market expectations of Japanese government intervention in forex will heat up, limiting the yen’s downside. Based on this logic, Nomura predicts USD/JPY will fall back to 140 by the end of 2026.

Citibank supports yen appreciation with a simpler framework: the ebb and flow between the BOJ’s rate hike cycle and the Fed’s rate cut cycle will ultimately push USD/JPY down to 142 by year-end.

The “Zig-Zag” Forecast from Moderates

Morgan Stanley and Bank of America present more dramatic scenarios. Morgan Stanley believes that in the first half of 2026, as the US economy slows, USD/JPY will fall to 140, but if the US economy recovers in the second half, arbitrage trading will re-activate, causing the yen to depreciate again, rebounding to 147 by year-end.

Bank of America’s view differs slightly, predicting USD/JPY will break above 160 in Q1, then enter a downtrend, ultimately stabilizing around 155 by year-end.

The Truth Behind Market Movements

The divergence in these forecasts essentially reflects different judgments on key issues: the sustainability of Japan’s fiscal policy, the firmness of the central bank’s policy path, and the direction of the global economic cycle. USD/JPY in 2026 is very likely to revisit the “rollercoaster” volatility seen in 2025, oscillating within a broad range of 140 to 164.

For investors, this presents both risks and opportunities. Accurately timing the highs and lows of the exchange rate, strategically shorting at peaks or going long at dips, will be central to managing yen fluctuations.