Will the Japanese Yen become a winner by 2026? Several major banks are optimistic about nearly 10% appreciation potential

The yen appreciation expectation is heating up in the market. A recent survey by US banks shows that among approximately 170 fund managers, one-third believe the yen will become the best-performing major currency by 2026. This consensus reflects a reassessment of the market’s long-term view of the yen’s value.

Exchange Rate Correction Imminent, Morgan Stanley Forecast Details

Morgan Stanley’s strategists recently released a significant outlook, suggesting that the USD/JPY exchange rate has considerable room for correction. As of November 25, the USD/JPY quote was 156.60, but according to the bank’s analysis, this level has deviated from fair value.

Morgan Stanley forecasts that as the Federal Reserve continues its rate-cutting cycle (market expectations for a December rate cut have risen to 80%), the USD/JPY could appreciate by nearly 10% in the coming months. If this judgment proves correct, the yen’s upside potential should not be underestimated.

Clear Path for 2026 Exchange Rate

The detailed forecast path indicates that USD/JPY will decline to around 140 in the first quarter of 2026, then rebound to around 147 by the end of the year. Strategists including Matthew Hornbach point out that declining US yields are expected to further depress fair value, supporting the yen’s appreciation trend.

It is worth noting that Japan’s new Prime Minister, Sanae Takaichi, has an active fiscal policy agenda. Although this brings short-term expectations of government intervention, it does not alter the fundamental pattern of Japan’s fiscal policy—lacking particularly expansionary features.

Arbitrage Trading Shift, Yen Faces New Opportunities

Morgan Stanley strategists further analyze that as signs of US economic recovery emerge in the second half of next year, the previously supporting arbitrage demand for the dollar will shift. This change could ease the current downward pressure on the yen and create new drivers for its appreciation.

Data from the US bank’s survey further validate this view. Fund managers generally believe that the current valuation of the yen is severely undervalued, and with potential government and central bank intervention support, the yen’s exchange rate may see a reversal opportunity. The formation of this market consensus indicates that the yen’s appreciation expectations are gradually shifting from institutional forecasts to widespread market recognition.