Can I buy Japanese Yen now? Yen trend analysis and outlook until 2026

The Japanese Yen has experienced intense volatility over the past year, from a strong appreciation at the beginning of the year to a sustained depreciation in recent months, attracting the attention of global investors. Should you intervene in Yen investments at this stage? This article will analyze the key drivers of the Yen to help you make more informed decisions.

Why is the Yen in a Depreciation Dilemma?

Widening US-Japan Interest Rate Differential is the Main Cause

Since the beginning of the year, the USD/JPY exchange rate has fallen from around 160 at the start of the year to a low of 140.876 in April, then gradually rebounded to above 157, hitting a 34-year low. Behind this oscillation is the fundamental divergence in monetary policy directions between the US and Japan.

The Federal Reserve has maintained high interest rates during its tightening cycle, while the Bank of Japan’s policy adjustments lag far behind, leading to a continued expansion of the interest rate differential. This interest rate advantage attracts capital outflows from Japan into US assets, exerting long-term downward pressure on the Yen.

Fiscal Concerns and Policy Deadlock Add to the Woes

Japan’s proactive fiscal policies have also raised market doubts about debt sustainability. The Sanae Takashi administration favors maintaining an accommodative stance, but BOJ Governor Ueda Kazuo recently issued warnings during parliamentary hearings, pointing out that a weak Yen raises import costs and overall inflation risks. The market interprets this as a signal of potential policy shifts, although specific actions remain unclear.

A continuous ten-month depreciation cycle has already broken multiple psychological barriers. When the Yen fell below 157 in November, global financial markets paid close attention, and Japan’s Finance Minister immediately issued the strongest intervention warning since September 2022, significantly increasing market expectations of official intervention.

The Historical Trajectory of Central Bank Policy Shifts

To understand the Yen’s future trend, it’s essential to review recent policy evolutions of the Bank of Japan.

The First Step to Ending Negative Interest Rates

In March 2024, the BOJ ended its years-long negative interest rate policy, raising the benchmark rate from -0.1% to a range of 0 to 0.1%. This was the first rate hike since 2007, ending a 17-year period, which should have boosted the Yen. However, the market did not respond positively. Due to US interest rates remaining much higher than Japan’s, the Yen continued to weaken as the interest rate differential widened.

Unexpected Rate Hike Sparks Market Turmoil

In July, the BOJ announced a 15 basis point hike to 0.25%, exceeding market expectations of a 10 bps increase. This decision triggered a large-scale unwinding of Yen arbitrage trades, causing the Nikkei 225 to fall by 12.4% on August 5. The Yen surged sharply in the short term, then entered a consolidation phase.

A Major Turning Point

In January 2025, the BOJ made a critical decision to raise the benchmark rate to 0.5%, marking the largest single rate hike since 2007. This signaled the official end of the ultra-loose era. Core CPI rose 3.2% YoY, exceeding expectations, coupled with a 2.7% wage increase from autumn labor negotiations, providing policy support. The Yen against the US dollar fluctuated and strengthened, with USD/JPY falling from 158 to around 150, even touching 140.876.

However, from the January rate hike through the six meetings until late October, the BOJ maintained its stance, keeping rates at 0.5%, and the Yen weakened again, with USD/JPY breaking above 150 once more.

Technical Analysis of Yen Trading Opportunities

Short-term Trading Guidance

From a technical perspective, USD/JPY still has room to rise but faces key resistance levels. Setting short positions around 156.70 is a relatively prudent strategy, as this is an important risk control point.

If Japanese authorities intervene or the December BOJ meeting confirms a rate hike path, the exchange rate could plummet sharply, targeting 150 or even lower. Such a rapid correction could present opportunities for medium-term bullish traders.

Signs of a Mid-term Reversal

Although the Yen is currently in a depreciation trend, the market is gradually forming a consensus: the current exchange rate is oversold. The combined bullish factors—possible intervention by authorities, a shift by the BOJ to a hawkish stance, and the weakening of the US dollar—lay a foundation for a medium-term Yen appreciation.

Institutional Forecasts and Outlook

Morgan Stanley’s Optimistic Outlook

Major investment bank Morgan Stanley recently analyzed that, as signs of US economic slowdown emerge, if the Fed proceeds with consecutive rate cuts, the Yen could appreciate nearly 10% against the dollar in the coming months. The bank believes USD/JPY has deviated from fair value, and as US Treasury yields decline, this deviation will be corrected in Q1 2026, with USD/JPY expected to fall to around 140.

Risk Warnings and Long-term Logic

Morgan Stanley also warns that if the US economy recovers in the second half of next year and re-ignites arbitrage demand, the Yen could face renewed pressure. From a technical standpoint, USD/JPY still has upside potential in the short term.

Key Indicators to Monitor for Yen Trends

To grasp future Yen opportunities, investors should focus on the following variables:

Inflation Data (CPI)

Japan remains one of the few countries with relatively low inflation, limiting the BOJ’s immediate rate hike room. If inflation continues to rise, the BOJ may be forced to raise interest rates, strengthening the Yen; otherwise, it will maintain an accommodative stance, and the Yen may struggle to appreciate in the short term.

Economic Growth Signals

GDP, Purchasing Managers’ Index (PMI), and other data directly reflect Japan’s economic health. Strong growth data imply more room for tightening, which is positive for the Yen; economic slowdown requires continued easing, pressuring the Yen. Currently, Japan’s economic growth is relatively solid among G7 countries.

BOJ’s Statements and Policy Decisions

Ueda Kazuo’s every statement can be amplified and directly impact short-term Yen fluctuations. The December BOJ meeting is especially critical, as markets await clear signals on the timing of rate hikes.

Global Central Bank Policies

The Fed’s pace of rate cuts will directly influence the Yen’s relative value. If major central banks, led by the Fed, begin a rate-cut cycle, the Yen could appreciate; otherwise, downward pressure persists.

Additionally, the Yen has traditional safe-haven attributes. When geopolitical risks escalate or financial markets experience turbulence, investors tend to buy Yen for hedging, as evidenced during the escalation of conflicts in the Middle East.

Overall Assessment and Trading Recommendations

Although the widening US-Japan interest rate differential and the slow policy shift of the BOJ continue to suppress the Yen in the short term, from a long-term perspective, the Yen will eventually revert to its fair value, ending its persistent depreciation trend.

Investors planning to travel or spend in Japan can adopt a phased buying strategy to meet future needs. For traders seeking to profit from currency fluctuations, it’s important to combine personal risk tolerance with the analysis above, emphasizing risk management to avoid passive positions during market volatility. Is now a good time to buy Yen? The answer depends on your investment horizon and risk appetite.