OCBC’s Sim Moh Siong and Christopher Wong highlight that Japan’s recent FX intervention, backed by United States (US) involvement, has not fully reversed Japanese Yen (JPY) weakness, with USD/JPY near 159 after retracing much of its post-intervention drop. They keep an end‑2026 USD/JPY forecast at 163 but say a more aggressive Bank of Japan (BoJ) hiking path and domestic capital flows back into Japanese assets could drive a more sustained JPY recovery.

Yen stability hinges on BoJ decisions

“Questions remain over whether Japan’s intervention, likely larger in scale and stronger in signalling power given US involvement, can reverse the JPY’s underlying weakness.”

“With USD/JPY approaching 159, the pair has already retraced almost 40% of its decline from the pre-intervention high of 164 to the post-intervention low near 155.50. We suspect both Japan and the US stand ready to intervene again if needed to stabilise the JPY.”

“We maintain our end-2026 USD/JPY forecast of 163. However, we could turn more constructive on the JPY if the BoJ follows through with a more aggressive rate hike path and if policies that encourage GPIF and NISA-related flows back into Japanese assets materialise.”

“Coordinated intervention has also fuelled expectations of earlier or faster BoJ tightening, helping to stabilise long-end JGB yields. The key risk is that a more stable JPY reduces the urgency for the BoJ to raise rates. With markets pricing around a 60% probability of a September hike, upward pressure on both USD/JPY and long-end JGB yields could re-emerge if the BoJ keeps rates unchanged.”

“Conversely, a September rate hike, combined with evidence of domestic investors reallocating capital back into Japanese assets, could drive a more sustained JPY recovery and provide longer-lasting relief for long-end JGB yields.”