When will the Japanese Yen stop falling? 2026 Japanese Yen Investment Guide | Experts Predict Yen Rebound Imminent

The Japanese Yen has recently experienced intense volatility. Many investors are asking: Will the Yen continue to depreciate? When will it rebound? Is now a good time to enter the market and buy Yen? This article uses data and market signals to answer these questions.

Morgan Stanley Sends Clear Signal: Yen Rebound Is Imminent

According to Morgan Stanley’s latest report, the Yen against the US dollar is expected to appreciate by nearly 10% in the coming months. The firm’s analysis indicates that the USD/JPY exchange rate has deviated from its fair value. As US Treasury yields decline, this deviation is expected to be corrected in the first quarter of 2026. Based on this, Morgan Stanley forecasts that USD/JPY will fall to around 140 Yen early next year.

What does this mean? If you buy USD at an exchange rate of 155 Yen now, you could sell it at around 140 Yen in early 2026, netting a profit of about 9%. This presents an investment opportunity driven by the Yen’s potential rebound.

Why Has the Yen Fallen Into a 10-Month Depreciation Cycle?

The Yen’s predicament started at the beginning of this year. In early 2025, USD/JPY was still near 160, but by April it dropped to 140.876, with the Yen soaring over 12% in three months. Many thought the Yen was about to turn around, but after May, it started heading downward again. By October, USD/JPY broke through 150, and in November, it hit a 34-year low, surpassing 157. The depreciation trend has lasted nearly 10 months.

Why is the Yen so weak? Two core reasons:

First, the “curse” of the US-Japan interest rate differential. The Federal Reserve maintains high interest rates, while the Bank of Japan has been hesitant to tighten monetary policy. The larger the interest rate gap, the more active arbitrage trading becomes—investors borrow in Japan (because it’s cheap), then invest in the US to earn interest rate differentials. As a result, the Yen is continuously sold off, while US dollars are aggressively bought.

Second, policy signals are confusing. Japanese Prime Minister Sanae Takaichi favors continued easing to stimulate the economy, but Bank of Japan Governor Kazuo Ueda has hinted at possible rate hikes to stabilize the Yen. This inconsistency confuses the market, keeping the Yen under pressure.

Three Key Turning Points for the Yen’s Rebound

The good news is, the conditions for the Yen to stop falling and start rising are gradually forming. The following three factors could be the “saviors” that change the game:

First, the Bank of Japan must clearly outline a rate hike path. Empty words about stabilizing the Yen are useless; concrete action is needed. If the BOJ explicitly announces a timetable for rate hikes at the December meeting, the market will react immediately—causing the Yen to jump. Technically, if the BOJ establishes a rate hike pace, USD/JPY could plummet sharply, with target prices heading toward 150 or even lower.

Second, the Federal Reserve shifts to cutting rates. As signs of US economic slowdown become more evident, expectations for the Fed to cut rates are rising. Once the Fed begins to lower rates, US capital will start flowing back home, easing the downward pressure on the Yen. This is a key driver for the Yen’s rebound.

Third, direct intervention by the government in the forex market. Japan’s Finance Minister recently issued a “strongest warning,” stating that currency fluctuations have become too rapid and one-sided, hinting that the government may intervene. This is the most assertive stance since September 2022. If the government actually steps in to buy Yen, the effect will be very direct.

Why Has the Yen Been Depreciating for Nearly a Decade? A Historical Overview

To truly understand the Yen’s current predicament, we need to look at how it has declined over the past ten years.

2011: Earthquake and Tsunami Devastate Japan. A massive earthquake, tsunami, and nuclear disaster inflicted heavy economic losses. To import energy like oil, the government was forced to buy large amounts of US dollars, leading to Yen weakness.

2012-2013: Abenomics Triggers Yen Collapse. Newly elected Prime Minister Shinzo Abe launched “Abenomics,” and BOJ Governor Haruhiko Kuroda announced unprecedented large-scale easing—aiming to inject the equivalent of $1.4 trillion into the market within two years. This caused the Yen to depreciate nearly 30% over two years, hitting a record low at the time.

2021: US Tightening Begins. The Fed announced tapering of bond purchases, pushing US yields higher and attracting capital inflows. Meanwhile, Japan’s ultra-low interest rates made the Yen a prime arbitrage currency—borrowing Yen to buy US bonds, stocks, and gold, earning interest rate differentials. This accelerated Yen depreciation.

2023: Market Anticipates BOJ Shift. With Ueda’s appointment as BOJ Governor, there are signals of reconsidering monetary policy. Japan’s inflation hit 3.3%, the highest since the 1970s, fueling expectations of policy tightening.

2024-2025: Central Bank Moves. In March 2024, the BOJ ended negative interest rates for the first time in 17 years, raising rates by 15 bps to 0.25% in July—surprising markets and causing the Nikkei to plunge 12.4%. The BOJ held steady until January 2025, when it raised rates again to 0.5%. Afterwards, it remained cautious, and the Yen started weakening again after June.

Four Key Indicators to Monitor for Future Yen Movements

Investors should focus on these data points to determine when the Yen might truly rebound:

Indicator 1: Japan’s CPI Inflation Rate. If inflation continues to rise, the BOJ has reason to tighten, which is positive for the Yen; if inflation cools, the BOJ may pause tightening, putting short-term pressure on the Yen. Currently, Japan’s inflation is relatively low compared to major economies.

Indicator 2: Japan’s Economic Growth Data. Especially GDP and manufacturing PMI. Strong economic data gives the BOJ room to tighten, which could strengthen the Yen; weak data does the opposite. Japan’s economy is relatively stable among G7 countries.

Indicator 3: Statements from the BOJ Governor. Ueda’s speeches are often scrutinized and can trigger short-term forex moves. Any hints of rate hikes or policy shifts should be taken seriously.

Indicator 4: Global Central Bank Policies. Decisions by the Fed, ECB, and others influence the Yen. If other central banks start cutting rates, the Yen may benefit. Historically, the Yen also acts as a safe-haven asset—investors buy Yen during international crises.

Practical Tips for Yen Investment

Is now a good time to buy Yen? The overall trend suggests conditions for Yen rebound are forming. Long-term investors may consider gradual accumulation, but caution is advised in the short term.

Strategy suggestions: Technically, it’s safer to reduce Yen holdings on rallies. A good risk management level is around 156.70. If the rate falls below this, it indicates a policy shift and the Yen’s rebound could accelerate.

For those traveling to Japan: Consider small, incremental purchases of Yen to accumulate for future trips. Don’t gamble everything; diversify your costs.

Professional forex investors: Establish a systematic monitoring mechanism—track central bank statements, inflation, economic data—and adjust positions promptly at policy turning points. Always set stop-loss orders to control risks.

Summary: The Dawn of Yen Rebound Is Here

Although the US-Japan interest rate differential is still widening and BOJ policy adjustments are ongoing, the market is forming a consensus—current Yen exchange rates are oversold. Institutions like Morgan Stanley, along with Japan’s government’s tough stance and Ueda’s hints about rate hikes, all point in the same direction: The Yen’s rebound is approaching.

Whether for travel or investment profits, now is a key moment to pay attention to the Yen. But remember, the forex market is highly volatile. Always develop plans based on your risk tolerance, and consult professionals if necessary to ensure proper risk management.