- The USD/JPY forecasts call for a significant weakening of the USD/JPY as the year progresses due to Fed easing/BoJ normalization.
The USD/JPY forecasts for 2026 are to be determined by a number of factors, but two key ones stand out. These are the Fed easing expectations, and the BoJ’s resumption of rate hikes. While there are other macroeconomic data that could cause short-term price changes, these two factors are expected to be the predominant influences on the pair’s direction in 2026.
Live Chart
The USD/JPY is currently trading at 158.61, aiming for the top end of a consolidation that has lasted since December 2023. These price levels are important, as most bank-led USD/JPY forecasts call for significant weakening from current levels, with an important proviso: the Fed’s easing and the BoJ’s normalization expectations must stay on track.
USD/JPY Forecast: Macro Drivers
The macro drivers for the USD/JPY in 2026 are:
- Fed policy path
- BoJ normalization amid wage inflation
- Yield differentials (carry trade)
- Intervention/policy risk premium
1. Fed policy
The expectation of Fed easing in 2026 is the main policy driver of the USD/JPY. Even if the Fed changes tone to signal fewer cuts, the market pricing around the pair still centres on at least 50 bps of Fed easing in 2026 due to the rates-market nature of this pair’s trade. The timing and depth of any rate cuts remain the variable that swings USD/JPY volatility.
2. BoJ Normalization
The Bank of Japan’s December 19, 2025, rate hike signaled the restart of the BoJ’s rate-hiking cycle in response to local wage inflation. The question is whether the BoJ can take rates even further, from 0.75% to 1.0%. The rise in Japanese Government Bond (JGB) yields that would follow this move is expected to increase demand for the JGBs, supporting the Yen structurally.
3. Yield differentials
There is still a carry trade opportunity, as MUFG’s research desk projects that US 2-year yields will fall across 2026 even as the Japanese 2-year yields rise. This is expected to compress the yield differential over time, thus changing the dynamics of the carry trade to favour the Yen over the greenback.
4. Intervention risk premium
There is always the risk of intervention by the Bank of Japan if USD/JPY moves to levels its Ministry of Finance finds uncomfortable. The rhetoric of the Japanese Finance Ministry, which tilts towards interventionist language, is sometimes enough to cause sharp price moves without any shifts in the pair’s fundamentals.
USD/JPY Forecasts 2026: What the Banks are Saying
Bank-published USD/JPY forecasts for 2026 mostly point to a weakening of USD/JPY, but there are some exceptions.
MUFG Research projects a quarterly-based decline of 200 pips, starting from 152 in Q1 2026 and ending at 146 in Q4 2026. NAB also has a bias towards Fed easing and projects this, along with BoJ normalization, as the driver of its USD/JPY forecast of 145 in 2026.\
Bank of America has a more supportive outlook for the US Dollar and argues that the pair would peak near 160 in Q1 2026 and remain above 150 for the year.
Base case: The base case scenario sees a gradual decline as the Fed eases rates, BoJ hikes incrementally, and yield differentials narrow slowly. The base case favours a price range of 146-150 in Q4 2026.
Bull case: The Yen bull case sees a faster repricing of Yen strength driven by greater BoJ hiking conviction, faster falls in US yields, and slowing US growth. This scenario sees the USD/JPY trading into the low 140s.
Bear case: The Yen bear case scenario aligns with BofA’s outlook, with price staying between 150-160 due to risk-off flows (geopolitics), lower repricing of Fed cuts, and BoJ stalling its rate-hiking process.
USD/JPY Forecasts 2026: Short-Term Technical Outlook
The pair is now approaching the top end of the consolidation that started in December 2023. The 162.02 upper boundary is the 27% Fibonacci extension of the January 2021 – October 2022 price swing. The price must breach the 10 January 2025 high at 158.47 to reach the 162.02 price mark. The 61.8% Fibonacci extension at 178.42 comes into view if 162.02 is uncapped.
On the flip side, rejection at the 158.47 resistance favours a pullback towards the December 2025 low at 154.31. Below this pivot, 149.60 beckons, as does the lower end of the near-term range at 146.39 if the price declines deeply.
FAQ
What is the JPY?
JPY is the symbol for the Japanese Yen.
What is the USD/JPY’s price today?
The USD/JPY is currently trading above 158, even though bank forecasts are for the pair to weaken as the year progresses.
What is the USD/JPY forecast for 2026?
Fed easing and BoJ normalization are expected to lead the USD/JPY lower, with the base case being a drop to the 146-150 price mark. This leaves an implied downside potential of at least 700 pips.