Japanese Yen outlook: 2025-2026 will be a turning point

Over the past decade, the Japanese yen has shown a clear depreciation compared to other regional currencies, such as the Thai baht, reflecting the complex factors influencing yen trends. In 2025-2026, we will analyze in depth why the yen remains a major concern for investors and what signals we should watch closely.

Key Factors Shaping Yen Trends: Five Critical Aspects Not to Overlook

The yen is not just an ordinary currency; it is a vital “indicator” of Japan’s economic health and its relationship with global financial markets. When the yen moves, it often signals major shifts in the global financial system.

Source: Forbesindia. According to data, Japan remains one of the world’s leading economies, expected to rank 5th in gross domestic product (GDP) in 2025, with approximately $4.19 trillion. This provides a fundamental basis for understanding why yen trends are significant to global investors.

Five Main Reasons Determining Yen Trends

First: Divergent Monetary Policies While the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) have implemented tightening policies, the Bank of Japan (BOJ) continues to support the financial system with easing measures such as Yield Curve Control (YCC), which manages long-term bond yields. This measure helps inject liquidity into the financial system and contributes to a weaker yen.

Second: Interest Rate Differentials When U.S. interest rates are higher than Japan’s, investors are motivated to shift investments to the U.S. market for better returns. This capital outflow exerts strong downward pressure on the yen.

Third: Economic Growth A weak yen reflects skepticism about Japan’s economic recovery prospects. Countries with robust GDP growth tend to have stronger, more trusted currencies.

Fourth: Trade Balance When a country runs a trade surplus (exports exceed imports), capital inflows tend to strengthen the currency. Conversely, Japan has experienced trade deficits during economic crises, posing additional challenges.

Fifth: Safe-Haven Asset Role This is a conflicting aspect. During global crises, the yen often appreciates as investors seek safe assets and “flee” to safety.

Japan Yen in 2025: Signs of Genuine Recovery?

Source: TradingView. As 2025 begins, the yen against the Thai baht (JPY/THB) remains a key focus for regional investors. In Q1 2025, this pair traded at around 0.2176 THB per yen.

Notably, this level remains above the major support at 0.2150, a level maintained for a long time. Staying above this support indicates the yen’s attempt to establish a “new territory” since 2021. The yen has depreciated over 30% against the baht.

This depreciation results partly from the BOJ reducing monthly bond purchases from 9 trillion yen to 7.5 trillion yen in Q2, signaling Japan’s move away from cautious policies toward tightening. Amid this, the yen shows slight signs of recovery, rising from 0.2130 to 0.2176.

Meanwhile, the Thai baht is supported by various factors, especially a strong tourism rebound, regional trade strength, and real interest rates attracting foreign capital. These factors keep the baht buoyant and exert pressure on the yen/THB rate.

However, if the BOJ decisively exits YCC and inflation remains high (around 2.5%-3.5%), the yen could further strengthen to 0.2250-0.2300 by late 2025. Conversely, if monetary tightening efforts lack conviction, the yen may test new lows below current levels.

Looking Ahead: Yen Outlook for 2026

Source: TradingView. Considering the long-term view (JPY/THB exchange rate), since peaking in 2012, the yen has been in a downward trend, with lower highs and lows. In 2023, the pair fell below 0.2400 for the first time.

During 2024-2025, amid recovery efforts, most trading ranges have been between 0.2150 and 0.2250, indicating a consolidation around “historical support levels.” As of December 2025, with bullish candles, a “market bottom” may form near 0.2150.

If the yen maintains this level and macroeconomic factors remain positive, the yen could gradually appreciate toward 0.2300-0.2400 in 2026. However, failure to hold this support could lead to new lows below 0.2100, especially if Japan continues easing policies while Thailand benefits from regional growth and foreign inflows.

Although technical data suggest the yen is near historic lows and may rebound, macroeconomic conditions and BOJ’s monetary policy trajectory will be the most critical factors in 2026.

What Investors Should Watch in 2026

First: Inflation and Interest Rate Differentials Global inflation pressures are expected to stabilize. If major central banks (Fed and ECB) continue to cut rates while Japan gradually tightens, the differential could strengthen the yen. However, BOJ’s indecision or reluctance may keep the yen weak.

Second: Japan’s Monetary Policy Moves The BOJ has signaled potential exit from easing. Concrete steps, such as ending negative rates or stopping YCC, could sharply boost the yen. The timing and cautious approach will determine whether yen recovery is real or illusory.

Third: Capital Flows and Geopolitical Tensions Japanese institutional investors may repatriate funds amid emerging market uncertainties. Such capital inflows typically support the yen. Additionally, regional geopolitical tensions could enhance the yen’s safe-haven status, impacting JPY/THB and other exchange rates late in the year.

Current (February 2026): Japan Yen Market Conditions

Source: Investing. Recent technical indicators show the yen/THB exchange rate in the short term is near a sell signal, with 13 key indicators: 7 signaling “sell,” 1 signaling “buy,” and 5 neutral.

The moving averages depict a confusing picture, with 6 “buy” and 6 “sell” signals, indicating no clear trend. However, the excess of “sell” signals suggests short-term downward pressure.

Traders should note: despite the oversold signals, historical support levels are close, which could serve as “touchpoints” for a potential reversal if market sentiment shifts.

Summary: Yen Remains a Major Investor Concern

The outlook for the yen continues to be a source of sleepless nights for global investors, as its movements are linked to many assets—from the US dollar and bond yields to the entire Japanese stock market.

2025 marks a turning point for BOJ’s monetary policy, with early signs of exiting easing. 2026 may reveal a new pattern in yen trends. However, the success of policy reforms and global market resilience will depend on whether actions are timely and sincere, rather than just words.