Crédit Agricole expects the US dollar-to-Japanese yen exchange rate to reach 163 by December 2026, suggesting renewed yen weakness despite recent intervention warnings from Japanese and US officials.

The forecast was published after USD/JPY closed Friday at 157.29, leaving the bank's year-end target roughly 3.6% above that level.

The pair fell almost 1.0% during Friday's session as the yen strengthened following comments from Japanese Finance Minister Satsuki Katayama about US concerns over the currency's persistent weakness.

According to Reuters, US President Donald Trump raised concerns about yen weakness during a meeting with Japanese Prime Minister Sanae Takaichi. Katayama later confirmed that Japan and the United States would continue close communication on foreign exchange policy.

Crédit Agricole expects USD/JPY to peak near 163

Crédit Agricole's projected path suggests that yen weakness may persist through the end of this year before a gradual recovery develops during 2027.

The bank forecasts:

  • December 2026: 163
  • March 2027: 162
  • June 2027: 161
  • September 2027: 158
  • December 2027: 156

The bank argues that direct currency intervention alone is unlikely to produce a sustainable appreciation of the yen unless it is supported by faster monetary tightening from the Bank of Japan.

Crédit Agricole noted that previous intervention helped prevent USD/JPY from extending significantly above the 164 area, but believes the BoJ would need to accelerate its interest rate increases to reduce the yen's attractiveness as a funding currency for carry trades.

Bank of Japan tightening has provided limited yen support

The Bank of Japan has already raised interest rates to 1.25%, the highest level in more than three decades, and has indicated that further tightening remains possible.

However, the yen has struggled to benefit significantly because US borrowing costs remain substantially higher. The Federal Reserve's September rate hike and hawkish policy guidance have reinforced expectations that the US-Japan interest rate differential could remain wide for longer.

Japan's top currency diplomat Atsushi Mimura said this week that financial markets should take the latest warnings from Tokyo and Washington seriously. He also indicated that Japanese authorities remain concerned about recent yen moves and did not rule out further action, although he declined to comment directly on possible intervention.

The yen briefly strengthened through the 157 level following his remarks, with USD/JPY falling toward 156.75.

JPMorgan identifies 156.50–156.60 as key support

JPMorgan had previously identified the 157.80 area as an important short-term pivot for USD/JPY, followed by a secondary support zone around 156.50–156.60.

Friday's close below 157.80 weakened the first support level, making the 156.50–156.60 region the next important area for traders monitoring the pair.

The bank has also observed increased yen demand from Japanese investors near recent USD/JPY highs, although overseas institutional investors increased their yen selling during the same period.

This divergence suggests that domestic investors may increasingly view current yen valuations as attractive, while international investors remain cautious because of the global interest-rate and energy-price environment.

High oil prices remain a problem for the yen

Both Crédit Agricole and JPMorgan highlight elevated energy prices as a major obstacle to a sustained yen recovery.

Japan relies heavily on imported energy, meaning higher oil and gas prices increase the country's import bill and can weaken its trade balance. Brent crude has recently traded above $100 per barrel as geopolitical tensions in the Middle East continue to disrupt global energy markets.

A weaker yen compounds this problem because imported fuel becomes even more expensive in local-currency terms, increasing inflationary pressure on Japanese households and companies.

Japanese government bond yields have also surged. The benchmark 10-year JGB yield recently reached around 3.1%, its highest level in approximately 30 years, reflecting both inflation concerns and uncertainty surrounding fiscal policy.

Intervention remains an important USD/JPY risk

Japanese authorities have already demonstrated their willingness to act in the currency market. Japan and the United States conducted a rare coordinated yen-buying intervention on July 31 after the currency approached multi-decade lows.

More recently, both governments have reiterated concerns about excessive yen weakness and disorderly currency movements.

As discussed in our previous USD/JPY analysis, speculation over intervention and expectations for additional Bank of Japan tightening have become increasingly important drivers of short-term volatility in the pair.

However, Crédit Agricole's projections suggest that monetary policy fundamentals may remain stronger than intervention effects in the near term.

USD/JPY outlook

The immediate focus remains on the 156.50–156.60 support area identified by JPMorgan. A sustained break below this zone could strengthen the case for a deeper yen recovery, particularly if Japanese authorities intensify intervention warnings or the Bank of Japan signals a faster tightening cycle.

On the upside, renewed US dollar strength and persistent pressure from high energy prices could push USD/JPY back toward the 160 area and, according to Crédit Agricole's forecast, potentially toward 163 by the end of 2026.

The longer-term outlook is more favourable for the yen. Crédit Agricole expects USD/JPY to gradually decline during 2027, reaching around 156 by December as the Bank of Japan continues normalising monetary policy and the interest-rate gap between Japan and the United States narrows.