From 2026 onward, the yen has been shifting from depreciation to appreciation. As the Japan-US interest rate differential narrows and expectations for a Bank of Japan rate hike build, the yen has moved into the 159 range, bringing both pressure on exporters’ profits and relief for household budgets.
From July to September 2026, USD/JPY remained in the 159 range, turning toward yen appreciation from above 165 in July. The backdrop includes a narrowing Japan-US interest rate differential and reduced expectations of an early US rate hike as US inflation slows.
As weaker US economic indicators spread the view that the Federal Reserve no longer needs to rush to raise rates, long-term US Treasury yields declined. In Japan, by contrast, expectations of a Bank of Japan rate hike increased, strengthening buying pressure on the yen. The market has broadly come to expect the Bank of Japan to raise its policy rate from 1.0% to 1.25% in September.
As the yen appreciates, the yen value of exporters’ dollar-denominated profits is expected to decline, while households are expected to benefit from the restraint on import prices. Market spillover effects, including a decline in the Nikkei 225, have also emerged, and uncertainty remains over the outlook.
As companies and households adapt, companies are expected to strengthen their foreign-exchange hedging, while households are encouraged to focus on long-term spending plans and securing a stable supply of essential goods. With fluctuations at around 159 assumed as the baseline, businesses and households are being called on to respond to changes in the foreign-exchange environment.