Yen Poised for Rebound: Citi Predicts Stronger Currency

By the end of 2026, the Japanese yen is anticipated to strengthen against the U.S. dollar, with USDJPY expected to drop below the ¥155 mark. This forecast comes from Citi, which employs valuation models suggesting a fair value for USDJPY around ¥161. Currently, the dollar-yen exchange rate appears balanced, influenced by a narrowing interest-rate gap supporting the yen, counteracted by the performance of Japanese equities.

While positive investor sentiment might create short-term pressure on the yen, Citi believes the potential for significant dollar appreciation is limited. The bank anticipates a correction lower for the exchange rate in the latter half of 2026. Furthermore, Citi suggests that even with policy normalization by the Bank of Japan, intervention through yen purchases may still be necessary for authorities to ensure currency stability, particularly if global investors continue to favor risk assets.