The 2026 USD/JPY outlook is full of suspense: institutions predict a range of 157-142, with bulls and bears intertwined into a "roller coaster"

The Federal Reserve’s rate cuts in 2025, the Bank of Japan’s rate hikes, and political changes in Japan have made the yen exchange rate a focal point in the global financial markets. As 2026 approaches, major investment banks have vastly different outlooks for USD/JPY, and a battle between bulls and bears is unfolding.

Depreciation Camp: Fiscal Expansion Suppresses the Yen, Expectation of Depreciation

JPMorgan holds a bearish stance on the yen. The bank believes that the proactive fiscal policies implemented by Japanese Prime Minister Sanae Takashi will exert long-term pressure on the yen. Since the market has already priced in the Bank of Japan’s rate hike expectations, the exchange rate driver has shifted to fiscal factors, and the yen faces a depreciation trend. JPMorgan’s forecast is particularly pessimistic: USD/JPY could reach 157 in early 2026 and further rise to 164 by the end of the year.

Barclays’ judgment aligns with JPMorgan. The bank points out that the new government’s expansionary fiscal stance, combined with the dovish monetary policy of the central bank, creates dual pressure to suppress the yen. Barclays expects USD/JPY to rise to around 158 by the end of 2026.

Appreciation Camp: Central Bank Rate Hikes Continue, Exchange Rate May Rebound

Nomura Securities is optimistic about the yen’s appreciation potential. The firm presents an interesting reverse logic: persistent yen depreciation will push up prices, and this inflationary pressure will undermine the political legitimacy of the high-inflation government, thereby increasing the government’s tolerance for further rate hikes by the Bank of Japan. Additionally, once USD/JPY approaches the 160 level, forex intervention expectations will rise, curbing further yen weakness. Based on these judgments, Nomura forecasts USD/JPY to sharply fall back to 140 by the end of 2026.

Citibank also has a positive outlook for the yen. The bank believes that as the Bank of Japan continues a gradual rate hike cycle, while the Federal Reserve remains in a rate-cutting phase, this divergence in monetary policy will be a key support for yen appreciation. Citibank expects USD/JPY to be around 142 by the end of 2026.

Swing Group: Changing Pace, Path Filled with Uncertainty

Morgan Stanley adopts a more complex forecast framework. The bank believes that slowing U.S. economic growth in the first half of 2026 will push the Fed toward further easing, and USD/JPY could fall to 140 in the first quarter. However, as the U.S. economy rebounds in the second half, arbitrage trading reactivates, pressuring the yen to rebound, and USD/JPY could rise back to around 147 by year-end.

Bank of America predicts another trajectory: USD/JPY will break above 160 in early 2026, then gradually decline and stabilize around 155 by the end of the year.

Market Insights: Bulls and Bears in Stalemate, Investment Opportunities and Risks Coexist

From the forecasts above, expectations for the yen’s 2026 trend range from 157 to 142 (highest bearish forecast at 164 vs. lowest bullish forecast at 140), reflecting significant divergence among market participants regarding key variables—Japan’s fiscal policy, the pace of central bank rate hikes, U.S. economic outlook, and more.

Whether USD/JPY can replicate the rollercoaster movement of 2025 depends critically on: whether government fiscal stimulus remains as strong as expected, whether the Bank of Japan accelerates rate hikes to combat inflation, how the Fed’s rate cut cycle unfolds, and when forex intervention expectations will be triggered.

In such a landscape of intertwined bulls and bears, investors need to closely monitor these variables and adjust strategies flexibly, as opportunities for shorting on rallies or going long on dips may emerge.