The annual range for USD/JPY has widened significantly since 2022, with forecasts indicating that the yen could strengthen to around ¥143 or weaken to around ¥172 by year-end.
Since 2022, the annual maximum range for USD/JPY is said to have continued widening, from ¥19 to ¥38. The range for 2026 is currently estimated at ¥152 to ¥163. If the annual range remains on track to widen beyond ¥20, this would imply a move to ¥143 on yen strength and ¥172 on yen weakness.
The widening interest-rate differential is cited as the primary cause of the sharp rise in volatility, although questions have also been raised over the fact that the USD/JPY interest-rate differential has narrowed to levels seen in the first half of 2022. In 2020 and 2021, the annual maximum range was approximately ¥11–¥13.
The impact of the narrowing US-Japan interest-rate differential over the past year or more, together with concerns over Japan's fiscal discipline, could influence the yen's direction. Views have been expressed that developments concerning a consumption tax cut could affect whether the yen strengthens or weakens.
The report notes, citing comments by US Treasury Secretary Scott Bessent, that developments concerning a consumption tax cut at the extraordinary session of the Diet in the autumn could be key to the yen's direction from the standpoint of maintaining fiscal discipline.