USD/JPY: Supportive flows but upside capped – OCBC

OCBC’s FX strategists Sim Moh Siong and Christopher Wong note that the Japanese Yen has strengthened alongside post-election rallies in Japan’s bond and equity markets, helped by easing fiscal concerns. With USD/JPY pulling back, he argues intervention urgency has faded and maintains an end-2026 USD/JPY forecast of 149, noting the Yen is unlikely to shift from funding to investment currency without a more hawkish Bank of Japan.

Fiscal reassessment tempers intervention risk

"JPY has strengthened unexpectedly, rising alongside post-election rallies in Japan’s bond and equity markets."

"The currency may be benefiting from easing fiscal concerns as the government adopts a more prudent tone ahead of upcoming policy clarifications."

"PM Takaichi reiterated that the temporary food-sales tax cut—costing about JPY 5tn annually, roughly equivalent to Japan’s education budget—will not be debt-financed."

"With USDJPY pulling back, the urgency for coordinated FX-intervention signalling has eased for now."

"We maintain our end-2026 USDJPY 149 forecast, reflecting the view that JPY will struggle to transition from a funding currency to an investment currency unless the BoJ turns more hawkish than our current expectation of two rate hikes this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)