OCBC sees yen nearing turning point as policy support builds

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OCBC: yen turning point and policy

Highlights

OCBC revises its end-2026 USD/JPY forecast to 155 from 160, expecting the yen to reach 150 by end-2027 as BoJ moves to normalize policy.
OCBC projects increasing policy support and potential shifts in Japanese portfolio flows could boost yen demand and drive foreign exchange performance.
OCBC expects the Swiss franc to remain the primary carry trade funding currency with Swiss National Bank rates at 0% at least through year-end, as the yen strengthens.

Revised outlook as policy gap narrows

As reported by CNBC, citing OCBC, the Singapore-based bank’s research unit says the Japanese yen is nearing a turning point even though its cheap valuation has so far done little to ease depreciation pressure.

OCBC foreign exchange strategists Sim Moh Siong and Christopher Wong say a rare coordinated intervention by Japanese and U.S. authorities followed the yen’s surge to multi-decade highs in July, squeezing speculative short yen positions and signaling official concern over excessive weakness. The bank says intervention on its own is unlikely to produce a lasting recovery without backing from domestic policy changes, but adds that such support may now be emerging.

The report says the Bank of Japan appears increasingly willing to normalize policy at a faster pace, which would narrow the policy gap with other major central banks. OCBC says that direction is more supportive for the yen, even if the BoJ is still unlikely to turn more hawkish than the Federal Reserve in the near term. The bank revises its end-2026 forecast for the yen to 155 per U.S. dollar from 160 and expects it to reach 150 by the end of 2027.

Flow shifts could strengthen yen demand

OCBC says the yen’s deep undervaluation could become a more meaningful driver of foreign exchange performance as policy and capital flow dynamics turn more supportive. The bank also sees scope for a shift in Japanese portfolio flows, with the currency standing to benefit if investors make any meaningful move back toward domestic assets.

It expects further policy initiatives aimed at encouraging domestic investment by Japanese investors, a development that could provide an additional tailwind for the currency. At the same time, OCBC says the Swiss franc is likely to remain the preferred funding currency for carry trades as the yen strengthens.

The bank links that view to its expectation that the Swiss National Bank keeps policy rates at 0% through at least year-end, preserving the franc’s role as a low-yielding funding currency. That comparison suggests investors may become less inclined to use the yen for funding trades if Japan’s rate outlook continues to firm.

Our earlier coverage of the Bank of Japan’s July meeting minutes highlighted a clearer shift toward addressing upside inflation risks as underlying price growth neared the 2% target. Several policymakers signaled openness to raising rates faster than markets expected, with higher import costs—amplified by a weak yen—reinforcing the case for further tightening.

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