Headline: Yen Rally Hopes Fade as Banks Slash Forecasts and BOJ Hike Bets Recede
Introduction: Prospects for a sustained rebound in the Japanese yen are deteriorating as major global banks cut their currency outlooks and markets dial back expectations for a near-term Bank of Japan rate hike. Rising fiscal uncertainty under Prime Minister Sanae Takaichi is adding to pressure on the yen, keeping USD/JPY elevated and investor sentiment cautious.
Global institutions have turned more bearish on the Japanese yen. JPMorgan now projects the currency at 156 per dollar by year-end, compared with a previous forecast of 142, and sees 152 by March 2026 instead of 139. MUFG Bank and Sumitomo Mitsui Banking Corp. have also revised their forecasts lower, reflecting a broad view that the BOJ is unlikely to tighten policy quickly. The central bank recently left interest rates unchanged, and Governor Kazuo Ueda signaled the need for additional data before any move. Market pricing currently implies only about a 57% probability of a rate hike in December.
Fiscal policy is increasingly steering the yen’s direction. Investors are bracing for “responsible and proactive” spending that could include a sizable supplementary budget, a scenario seen as yen-negative if it widens deficits or suppresses real yields. New appointments to the Economic and Fiscal Policy Council from Japan’s reflationist camp have reinforced expectations that authorities may tolerate a weaker currency. Strategists note that selling pressure has intensified as these signals accumulate.
Near term, support for the yen looks limited, despite some calls for eventual buying tied to profit-taking in Japanese equities. Currency markets will be watching a November 10 speech by BOJ Policy Board member Junko Nakagawa for fresh guidance on the policy path. Until clearer signs of tightening or a smaller-than-feared fiscal package emerge, USD/JPY momentum remains skewed to the upside.
Key Points: – Major banks cut yen forecasts; JPMorgan now sees 156 per dollar by year-end and 152 by March 2026. – BOJ left rates unchanged; markets assign roughly a 57% chance of a December hike. – Governor Ueda’s cautious stance keeps expectations for tightening subdued. – Investors worry a large supplementary budget under PM Sanae Takaichi could weaken the yen further. – Reflationist-leaning appointments to a key policy council suggest tolerance for a softer currency. – Markets await BOJ board member Junko Nakagawa’s November 10 speech for policy clues.
