The unexpected shift toward U.S. rate hikes in early 2026 affected dollar-yen, driving yen weakness and dollar strength. Meanwhile, coordinated intervention by Japan and the United States is expected to function as a deterrent.
At the beginning of 2026, U.S. monetary policy was expected to include approximately 2 rate cuts a year. However, inflation again remained elevated, while the outbreak of war with Iran and higher oil prices added to the pressure, strengthening expectations of rate hikes and pushing up the dollar. The Bank of Japan, by contrast, is already moving into a rate-hike cycle, but unlike the major shift in the United States, its rate hikes have not yet reached a point where they significantly move the market.
There had been expectations that prospects for a narrowing Japan-U.S. interest-rate gap would support the yen, but in reality dollar strength and yen weakness progressed, with the dollar at times moving above ¥160 and leading to coordinated intervention by Japan and the United States. The intervention is not considered capable of fundamentally moving the market and is seen as serving only to restrain excessive price movements.
Although the annual price movement appears large, the actual change was limited to approximately ¥12, from the ¥152 range at the beginning of the year to the ¥164 range, with volatility remaining at approximately 7.8%. The market is expected to focus on whether expectations emerge that Japan's rate hikes will come to an end or that rate cuts will begin, as the next factors capable of driving a major move.