JPY Exchange Rate Trends 2024-2026: Falling from 155 to 159, Will it decline further in the future?

The Japanese Yen has experienced significant depreciation over the past two years, with the exchange rate dropping from around 150 at the beginning of 2025 to breach the 159 mark. Many Taiwanese investors and consumers planning to visit Japan are focused on the same question: Will the Yen continue to weaken? What is the forecast for the Yen exchange rate in 2026? This article will analyze the underlying logic behind the Yen’s depreciation through central bank policies, economic data, and market mechanisms.

Why the US-Japan interest rate differential is widening and the Yen remains under pressure: three fundamental reasons

After a brief V-shaped reversal in 2025, the Yen’s decline persisted into 2026. On January 14, the USD/JPY exchange rate broke through the critical level of 159.454, hitting a recent low. Despite statements from Japanese Finance Minister Shunichi Suzuki and Financial Services Agency officials attempting to stabilize the currency, market momentum remains strong.

The US-Japan interest rate differential is the core mechanism explaining the Yen’s continued depreciation. Although the Bank of Japan (BOJ) raised interest rates twice in 2025 (to 0.5% in January and 0.75% in December), Japanese rates remain far below U.S. levels. This creates a substantial interest rate gap, prompting domestic and foreign investors to borrow low-yield Yen and invest in higher-yielding dollar assets. As long as this spread exists, selling Yen will continue to exert downward pressure.

In October 2025, Japan’s new government launched a large-scale fiscal stimulus plan aimed at boosting economic growth. However, markets worry that increased government debt issuance will raise fiscal deficits and long-term interest rate risk premiums. This concern further dampens demand for Yen.

The third factor comes from the U.S. side. The U.S. economy remains relatively resilient, with sticky inflation, and the Trump administration’s strong dollar policies and tariffs have further supported the dollar index. In contrast, as a low-yield currency, the Yen is more vulnerable to sell-offs during periods of rising global risk appetite. In the first half of 2025, the Yen briefly rebounded on expectations of BOJ rate hikes, but in the second half, the dollar’s strength dominated, pushing USD/JPY from the 140-150 range sharply higher to above 155-159.

The Bank of Japan’s policy shift: limited impact on exchange rates

A key turning point for the Yen occurred in 2025. After over a decade of ultra-loose monetary policy, the BOJ finally began raising interest rates.

On January 24, 2025, the BOJ announced a rate hike from 0.25% to 0.5%, the largest single increase since 2007. This decision was supported by two main factors: core inflation rising to 3.2%, and autumn wage negotiations reaching a 2.7% pay increase agreement. Markets initially hoped this rate hike would reverse the Yen’s depreciation, and indeed, USD/JPY fell from around 158 at the start of the year to 140.876.

However, the rally was short-lived. From January to October, the BOJ maintained rates unchanged for six consecutive meetings, and the Yen weakened again, with USD/JPY breaking back above 150. It wasn’t until December 19 that the BOJ raised rates again by 0.25 percentage points to 0.75%, the highest level in nearly 30 years since 1995.

The problem is: raising rates alone is insufficient to change the fundamental outlook. Major international banks’ analyses suggest that the psychological impact of rate hikes has largely dissipated, and markets are now focusing on the cautious pace of BOJ tightening. The BOJ has explicitly stated that real interest rates will remain significantly low, and accommodative monetary conditions will continue to support the economy. This moderate stance cannot reverse long-term Yen depreciation expectations.

On January 23, 2026, the BOJ kept rates steady at 0.75%. The market immediately pushed the Yen lower again, with USD/JPY briefly falling to 158.61. Many see 160 as a key psychological level—also the trigger point for multiple interventions by Japanese authorities in the FX market in 2024.

Forecast for the Yen in 2026: four key factors that could trigger a reversal

The Yen’s future trajectory depends on four critical variables. First is the pace of BOJ rate hikes. Market consensus expects the BOJ to reach around 1% by mid- or late-2026. Faster rate increases would support the Yen.

Second is the speed of narrowing the US-Japan interest rate gap. If the Fed cuts rates quickly due to U.S. economic slowdown, a rapid narrowing of the spread would favor Yen appreciation. Conversely, if the Fed proceeds gradually or the U.S. economy remains robust, the dollar will stay strong, limiting Yen rebound potential.

Third is global risk sentiment. Historically, the Yen has been a safe-haven currency. During major declines in global equities and risk assets, investors tend to buy Yen for protection. When risk appetite rises, carry trades and arbitrage activities tend to push the Yen lower.

Fourth is Japan’s economic fundamentals. Despite domestic consumption remaining weak and occasional GDP contractions, government stimulus measures may show results in the second half of the year. Improved economic data could provide further support for rate hikes and Yen appreciation.

How do international institutions view the Yen’s outlook for 2026?

Major global banks have divergent forecasts, generally agreeing that the BOJ’s hawkish signals are insufficient to reverse the Yen’s downtrend.

Junya Tanase, head of FX strategy at JPMorgan Japan, holds the most bearish view, predicting USD/JPY could reach 164 by the end of 2026. He notes that the Yen’s fundamentals remain weak, and as other major economies’ interest rates rise and the BOJ’s tightening effects are limited, the Yen will face persistent depreciation.

Akira Hoshino, head of Japan markets at Citigroup, states, “The Yen’s weakness is driven by negative real interest rates.” He emphasizes that Japanese government bond yields remain below inflation, creating a negative real rate environment. To reverse Yen depreciation, the BOJ must address this fundamental issue.

Parisha Saimbi, emerging Asia FX strategist at BNP Paribas, expects USD/JPY to dip toward 160 by the end of 2026. She believes the global macro environment remains relatively supportive of risk appetite, which sustains carry trades. Considering ongoing arbitrage demand, cautious BOJ actions, and potentially more hawkish Fed policies, the dollar is likely to trade in a high range against the Yen.

Practical strategies for Taiwanese investors to navigate Yen fluctuations

For Taiwanese travelers planning trips to Japan, the current high exchange rate isn’t entirely negative. A dollar-cost averaging approach—dividing currency purchases into multiple smaller transactions—can help mitigate exchange rate risk and avoid locking in the worst rates at once. Over the long term, the Yen is expected to revert to its fair value, ending this prolonged downtrend.

For investors seeking forex gains, understanding the drivers of Yen movements is crucial. Key indicators to monitor include:

1. Japan’s CPI data: Rising inflation gives the BOJ more reason to accelerate rate hikes, supporting the Yen. Cooling inflation reduces urgency for tightening.

2. Japan’s GDP and PMI: Strong economic data suggest room for tighter policy, which can boost the Yen. Weak data imply continued easing and Yen weakness.

3. BOJ officials’ comments: Statements from Governor Ueda and other officials can be amplified by media, acting as catalysts for short-term volatility.

4. Global environment shifts: Fed policy expectations, U.S. economic data, and geopolitical risks influence dollar strength, thereby affecting USD/JPY.

Long-term perspective on Yen exchange rate

While short-term factors like widening US-Japan interest rate spreads and cautious BOJ policy shifts hinder Yen strength, in the long run, the Yen will eventually return to its fair value. As Japan’s third-largest economy, its currency’s intrinsic value will not be ignored forever. When economic fundamentals improve, rates rise, and inflation remains at target levels, the Yen will turn around.

In the current environment, investment decisions should be based on a thorough understanding of risks. Whether for consumption or investment, consulting professional advice and aligning with personal financial situations and risk tolerance are essential. The future of Yen exchange rates remains influenced by the interplay of central bank policies, global economic trends, and market sentiment—understanding these factors enables better opportunity recognition amid volatility.