The Japanese central bank's policy path is cautious, and the possibility of a bearish yen in 2026 is increasing.

The latest rate hike by the Bank of Japan has failed to sustainably boost the local currency, leading to increasingly bearish sentiments towards the yen in the market. This further strengthens the view that structural weaknesses in the yen cannot be quickly resolved. Strategists from institutions such as J.P. Morgan and BNP Paribas believe that due to factors such as the large US-Japan interest rate differential, negative real interest rates, and continuous capital outflows, the yen will fall to 160 or lower against the US dollar by the end of 2026. They point out that as long as the Bank of Japan continues to gradually tighten monetary policy and inflation risks persist due to fiscal stimulus, this trend may continue. After four consecutive years of decline, the yen has risen by less than 1% against the US dollar this year, and the anticipated boost from rate hikes by the Bank of Japan and rate cuts by the Federal Reserve has not been ideal. In April, the yen briefly rose above 140, but lost momentum due to the uncertainty surrounding President Trump's tariff policies and fiscal risks from changes in the Japanese political landscape. Currently, the yen is fluctuating around 156, not far from the year's low of 158.87.