ING sees the yen strengthening as Japan pairs looser fiscal policy with tighter BOJ settings while the Fed moves toward further easing.
I'm a little wary of this, the current signalling out of the Fed seems to be on hold:
Summary:
ING sees scope for further yen recovery
Takaichi mandate supports fiscal expansion
BOJ expected to hike at least once more
Fed seen cutting twice this year
158–160 USD/JPY flagged as intervention zone
The Japanese yen may have further room to recover as a shift in Japan’s policy mix creates a more supportive backdrop for the currency, according to analysts at ING.
In a research note, ING argues that the combination of potentially looser fiscal policy under Prime Minister Sanae Takaichi and tighter monetary settings from the Bank of Japan could underpin renewed yen strength.
Takaichi’s Liberal Democratic Party secured a clear majority in the recent snap election, providing what ING describes as a strong mandate to pursue pro-growth initiatives and a more assertive foreign policy stance. Markets have interpreted this political stability as increasing the likelihood of fiscal expansion, particularly in areas such as defence and industrial policy.
At the same time, ING expects the Bank of Japan to deliver at least one additional rate increase, extending its gradual normalisation cycle. This contrasts with expectations for the Federal Reserve, where further rate cuts remain on the table over the course of the year. A narrowing of U.S.–Japan yield differentials could reduce upward pressure on USD/JPY and support the yen.
ING suggests that under this scenario the dollar could drift closer toward the 150 yen level. However, the analysts also flag that any renewed move higher in USD/JPY toward the 158–160 area would likely draw renewed yen buying interest. That zone has previously attracted attention from Japanese authorities, who have demonstrated a willingness to step in to curb excessive currency weakness.
Overall, ING’s framework points to a more constructive medium-term outlook for the yen, driven by diverging monetary policy paths and a firmer domestic political mandate in Japan. While volatility remains likely, the balance of risks may be shifting away from persistent yen depreciation and toward a more stable or gradually strengthening currency profile.
