The Japanese Yen (JPY) is finding support from an expected rise in interest rates by the Bank of Japan, with markets pricing in a 25 basis point move on December 19. The USD/JPY pair is expected to reach 152 by the end of the year, with a modest forecast of 148 for 2026 as Japan balances deflation with currency strength, notes ING FX analyst Chris Turner.
USD/JPY is preparing for a modest decline at the end of the year
“USD/JPY’s October rise above 150 came as a shock to many. By mid-November, most had concluded that there was little that could change USD/JPY short of massive official intervention at 160. In addition, we were asked several times whether the yen was losing its safe-haven status. We answered that the benign risk environment meant that the yen had not been seriously tested on this.”
“However, the prospect of the Bank of Japan raising interest rates now appears to finally be supporting the yen. A 25 basis point rise was effectively priced in at the December 19 meeting, and the JPY 1 million interest rate, priced two years forward, has moved to 1.47% from 1.14% last month alone. The view here seems to be that the new Japanese government, despite its recovery credentials, is unwilling to embrace a weak yen and will allow the BOJ to raise rates.”
“We have a modest target of 152 for USD/JPY by the end of the year. And also a modest forecast of 148 by the end of 2026.”
