Is the Japanese Yen About to Appreciate?

The yen’s exchange rate is expected to have strong support starting in 2026. Factors hindering yen depreciation go beyond mere concerns about government and central bank intervention in the exchange rate.

Historically, the yen’s exchange rate trend tends to shift significantly at the beginning of each year, leading to speculation that it will appreciate.

On January 6th in the Tokyo foreign exchange market, the yen appreciated against the dollar to between 156.0 and 156.5 yen, about 1 yen higher than the low of January 5th. The yen is expected to remain stagnant until it reaches the low of 158.80 yen in January 2025 and the 160 yen level.

Concerns about currency intervention persist. In late December 2025, Japanese Finance Minister Satsuki Katayama stated in an interview with Bloomberg that Japan has the “discretion” to intervene in the exchange rate, strongly restraining the yen’s depreciation trend. While opinions differ on the timing of actual intervention, a further unilateral depreciation of the yen is unlikely. Eiichiro Tani, chief strategist at Daiwa Securities, is focusing on the South Korean authorities’ efforts to curb the won’s depreciation.

Since December, South Korea has engaged in widespread verbal intervention, citing reasons such as “not wanting the won to depreciate excessively.” Reports indicate that the National Pension Service (NPS) has been buying won through foreign exchange hedging to support the exchange rate, and the won’s current exchange rate against the US dollar is lower than in December.

The won and the yen have shown similar trends against the dollar. Both currencies are prone to speculative activity, including situations where the two countries agreed to make large investments in the US during tariff negotiations. Tani of Daiwa Securities stated, “In South Korea, where the situation is similar, the momentum to reverse the won’s depreciation is strengthening, and Japan may also strengthen its efforts to correct the yen’s depreciation.”

Furthermore, those in the foreign exchange market are also aware of the recurring yen exchange rate fluctuations at the beginning of the year for the past three years.

The yen’s exchange rate from 2023 to 2025 is projected to reverse in January, turning in the exact opposite direction to the previous year. The turning points vary from year to year. For example, in 2025, the yen appreciated rapidly from the beginning of the year due to the Bank of Japan’s January interest rate hike and US President Trump’s tariff policies.

Many investors temporarily close their positions at the end of the year. “The trading theme changes at the beginning of the year, and the situation is continuing to be contrary to the expectations at the end of last year,” said Masafumi Yamamoto, chief foreign exchange strategist at Mizuho Securities. Therefore, January and February are likely to be the starting point for the formation of the next trend.

What about this year? A foreign exchange broker at a large Japanese bank said, “With concerns about the deteriorating fiscal situation under the Takashimura administration gradually easing, I personally believe that the yen’s appreciation will be the mainstream scenario.” The market trend is for the yen to continue depreciating, but the broker said, “It cannot be completely determined that the yen will depreciate further.”

Motoshige Sakai, head of the Market Sales Division of the Foreign Exchange Department at Mitsubishi UFJ Trust Bank, also believes that “the yen exchange rate may gradually shift towards appreciation against the US dollar, given the overall situation of being unable to escape depreciation and stagnation.” He also stated, “The Japanese government and the Bank of Japan have also shown a willingness to intervene without being bound by horizontal lines, making it difficult to actively short the yen at this time.”

A multitude of events could potentially trigger a shift in the exchange rate. Takeshi Higashikaze, chief economist at Mizuho Research & Technology, highlighted the upcoming spring labor-management negotiations in March and April 2026 as a key focus, stating, “If the direction of wage increases can be definitively confirmed, the yen will face upward pressure.”

Furthermore, the direction of US interest rates needs to be monitored. Higashikaze indicated that at a rate of 155 yen to the dollar, a 1% fluctuation in long-term US interest rates would result in a roughly 12-yen fluctuation in the yen’s exchange rate. The yen-dollar exchange rate is highly sensitive to US interest rates, and fluctuations in US interest rates frequently influence exchange rate movements.

Sakai of Mitsubishi UFJ Trust Bank pointed out, “Previously, the exchange rate was formed due to the lack of accurate economic data caused by the (US) government shutdown, but starting with the December US employment data released on the 9th, the economic situation can finally be definitively confirmed.” He believes that “this data could become a leading indicator for the yen-dollar exchange rate.”

The U.S. Commodity Futures Trading Commission (CFTC) revealed that as of December 30, 2025, hedge funds and other non-commercial sectors saw a slight net purchase of yen positions. By the end of the year, position adjustments have largely concluded, and speculators have almost returned to neutral. The current environment provides a foundation for investors to begin acting with an eye on trend changes in 2026.