BOJ Fails To Support Depressed Yen. Forecast as of 29.12.2025 | LiteFinance
Japan has a rich history of currency interventions. Tokyo has repeatedly managed to temper USD/JPY bulls. Will it work this time, given that the dollar at ¥160 and above is unlikely to satisfy the government? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The yen is weakening due to low real interest rates.
- The Fed’s pause is a positive factor for USD/JPY quotes.
- The Bank of Japan is not supporting the yen.
- Long trades can be opened above 156.6.
Weekly Fundamental Forecast for Yen
It takes two to tango. Japan’s previous currency interventions proved effective because the US dollar weakened against major world currencies. This time, the extended pause in the Fed’s monetary expansion cycle is setting the stage for a correction in the greenback. In this situation, Tokyo’s sales of USD/JPY are likely to prove futile.
In the Forex market, events unfold rapidly. In early December, Bloomberg analysts considered the yen to be one of the main favorites for 2026. By the end of the year, the number of its opponents had increased, and speculators had increased their net shorts to their highest levels since July 2024.
USDJPY Performance and Speculative Positions on Yen
Source: Bloomberg.
BNP Paribas sees the US dollar at 160 against the yen by the end of 2026. JP Morgan even puts it at 164, arguing that cyclical factors will lead to a weaker yen, offsetting the positive impact of the Bank of Japan’s rate hike. In fact, rates are still higher abroad; there is some sense in this point of view.
Fish look for deeper waters, and investors look for higher returns. While the Japanese government talks about the speculative, fundamentally unsound rally of USD/JPY quotes, hedge funds continue to buy the pair. At first glance, Japanese officials are right: the yen is severely undervalued in terms of the yield gap between US and Japanese bonds. However, this is about nominal rates, while real rates suggest otherwise.
USDJPY Rate and US-Japan Bond Yield Gap
Source: Bloomberg.
Taking inflation into account, the yield on Japanese debt is much lower than its foreign counterparts. According to futures market estimates, the current scenario is unlikely to change until September. At that time, market participants anticipate an increase in the Bank of Japan’s overnight rate. In March, the Fed may lower borrowing costs, but it is unlikely that a serious correction in the USD/JPY pair will happen before spring.
The scenario of Tokyo’s official transition from verbal to currency interventions looks much more appropriate. The government does not favor a weak yen, as it leads to an increase in the cost of imports and accelerates inflation. Notably, Sanae Takaichi aims to combat elevated prices. Levels of 160, not to mention 164 in the USD/JPY pair, are unacceptable for the Japanese prime minister.
The minutes of the last Bank of Japan meeting contain many hawkish signals. The members of the Governing Board consider the current rates to be too low compared to inflation. They argue that normalization will curb inflation expectations.
Weekly USDJPY Trading Plan
Without the US dollar weakening against major global currencies, Japan’s interventions will be ineffective. Against this backdrop, one can buy the USD/JPY pair above 156.6 and use subsequent sharp declines to form new long positions.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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