USD/JPY near 159 is testing Yen bulls as Natixis and MUFG back a September BoJ hike, with Himino and US inflation data next in focus.

The US Dollar to Japanese Yen (USD/JPY) exchange rate ended Friday at 158.98, almost five Yen below July’s peak near 164 but still uncomfortably high for Tokyo after the latest policy response.

The joint US-Japan intervention drove USD/JPY as low as 155.27 at the end of July, yet much of that Yen recovery has since disappeared.

USD/JPY rose 0.89% during August and spent most of last week back around 159, despite a substantial increase in expectations that the Bank of Japan will tighten policy next month.

Natixis and MUFG economists now agree that September should deliver another rate increase, although the stubborn behaviour of the exchange rate makes the harder question obvious: how much BoJ tightening will actually be needed to produce a lasting Yen recovery?

Analysts at Natixis have brought forward its previous October call and now expect a 25-basis-point hike to 1.25% on 18 September.

“The Bank of Japan (BoJ) is set to raise the policy rate by 25-bps on September 18th, as inflation pressure strengthens,” economists Alicia García Herrero and Kohei Iwahara said.

The inflation case has strengthened quickly.

Nationwide headline inflation rose to 1.9% year-on-year in July from 1.6%, while inflation excluding food and energy increased to 1.4% from 1.2%.

Natixis also points to a striking 29.1% annual increase in import prices, with expensive energy and the weak Yen increasingly feeding into domestic costs.

Manufactured-goods inflation accelerated to 3.2%, while general-services inflation edged up to 1.4%.

“These results suggest that the lag in the transmission of import inflation on CPI could be shorter than six to twelve months,” Natixis said, arguing that the developments “justify the BoJ’s concern on upside risk of inflation.”

There is a political element to the forecast as well.

Natixis believes the Japanese government has become more accepting of faster monetary tightening following Washington’s decision to participate in the Yen intervention.

With USD/JPY already back around 159, policymakers have little reason to assume currency intervention on its own has solved the problem.

Natixis argues that the government could conclude “that a bolder BoJ is needed to prop up the Yen back to reasonable levels and, thus, limit the pass through to inflation.”

The bank’s new path extends beyond September, with additional hikes expected in January and July 2027 taking the policy rate to 1.75%.

“All in all, the BoJ is anticipated to hike by 25-bps to 1.25% in September, earlier than our previous call of October,” Natixis said.

Governor Kazuo Ueda had already warned about upside inflation risks at the July meeting, and Natixis believes events have caught up with that warning.

“That risk has materialized with today’s CPI inflation so the hike should happen, all the more so given the renewed Yen weakness,” the bank concluded.

View full size

USD/JPY remains well below the late-July peak near 164, although the recovery from 155.27 has taken the pair back towards 159 and left the Yen struggling to extend its intervention-driven gains.

MUFG’s Derek Halpenny also thinks the latest Japanese inflation figures support action in September.

“The data backs up current market pricing, and our view, that the BoJ will hike rates by 25bps at the next policy meeting in September,” MUFG said.

Market pricing at the end of last week implied roughly an 80% probability of such a move, which means a September hike is rapidly shifting from hawkish surprise towards base case.

That perhaps explains why the Yen has reacted so poorly to the repricing.

“Stronger inflation in Japan has had a limited FX impact with USD/JPY stable,” MUFG noted.

Higher Japanese government bond yields have not produced much more encouragement either, suggesting that investors want evidence of a genuine tightening cycle rather than another isolated 25-basis-point move.

We’ve previously looked at whether intervention has changed the underlying USD/JPY trend; the recovery towards 159 keeps that argument very much open.

USD/JPY Week Ahead: Himino Has a Chance to Strengthen the Message

MUFG sees Deputy Governor Ryozo Himino’s next appearance as an important opportunity for the BoJ to make its September intentions clearer.

“There has been limited opportunities for guidance from the BoJ of late but next Friday Deputy Governor Himino is scheduled to speak and that could be an opportunity for cementing expectations of further action in September,” the bank said.

The latest Bank of Japan release schedule now lists Himino’s speech to local leaders in Saitama for Thursday 27 August at 10:30 JST.

Japan’s calendar also includes the BoJ’s core CPI indicators on Tuesday and the July Services Producer Price Index on Wednesday, giving markets more inflation evidence to digest before Himino speaks.

The Dollar side will be busy at almost exactly the same time.

The US Bureau of Economic Analysis release schedule has July Personal Income and Outlays, including PCE inflation, and the second estimate of Q2 GDP both due on Wednesday 26 August.

Fed Chair Kevin Warsh then makes his first Jackson Hole appearance as chair as the symposium runs from 27-29 August, with investors looking for a clearer steer on whether the Fed still sees another rate increase as necessary.

A softer PCE reading combined with firm guidance from Himino would give Yen bulls the cleaner setup: less support from US yields at the same time as the BoJ establishes a more credible tightening path.

Stronger US inflation or a hawkish Warsh message would make the arithmetic much less favourable, particularly if Himino merely confirms what markets already price rather than signalling that further moves are likely.

Natixis and MUFG increasingly agree on September, so the next phase of the USD/JPY trade is no longer primarily about whether the BoJ hikes.

It is about whether Tokyo can persuade the market that 1.25% is the beginning of a more meaningful tightening cycle rather than another small step while the rate gap with the United States remains wide.

Near 159, the Yen is still waiting to be convinced.

Exchange Rates UK Research’s latest August 2026 survey of major investment banks points to a gradually stronger Euro-to-Dollar exchange rate through 2027, although the near-term consensus remains cautious.

With EUR/USD currently around 1.1677, the median forecast falls to approximately 1.15 in Q3 2026 before recovering to around 1.165 in Q4.

The median then rises to 1.18 in Q1 2027 and remains at 1.18 in Q2, around 1.1% above the current exchange rate.

The headline finding is therefore not for an immediate euro breakout. Instead, the latest survey suggests near-term consolidation followed by modest euro appreciation as 2027 develops.

Individual forecasts remain much more divided, with the Q2 2027 range stretching from 1.10 to 1.21.

View full size

Latest Survey Sees EUR/USD Recovering Towards 1.18

The latest Exchange Rates UK Research poll includes 25 bank forecasts for Q3 and 26 for Q4, providing a broad measure of institutional expectations.

The immediate outlook is relatively restrained.

The Q3 median around 1.15 sits below current spot, with the central 50% of forecasts concentrated roughly between 1.14 and 1.16.

By Q4, however, the median recovers towards the current market level.

The balance shifts more clearly in favour of the euro during 2027.

The median reaches 1.18 in both Q1 and Q2, while the central forecast range moves higher.

By Q4 2027, the median reaches approximately 1.20, although the number of banks providing forecasts declines at longer horizons.

There are significant differences beneath those averages.

Scotiabank forecasts EUR/USD at 1.20 in Q4 2026 and 1.21 by Q2 2027. ABN AMRO, CIBC, ING, MUFG, National Bank of Canada, TD Economics and UBS also have forecasts reaching 1.20 or above.

Nomura is particularly bullish further out, forecasting 1.22 in Q1 2027 and 1.25 by Q4.

The bearish camp is equally noteworthy.

HSBC forecasts EUR/USD falling to 1.10 by Q2 2027, while JP Morgan also sees 1.10. Goldman Sachs and Danske Bank project 1.12, while Citi maintains forecasts around 1.13–1.14.

View full size

The breadth of these projections is important.

The median points modestly higher, but there is no overwhelming institutional agreement that EUR/USD must rise.

Euro Rebounds as Dollar Comes Under Fresh Pressure

The survey comes after a sharp change in EUR/USD momentum.

The pair fell to a 2026 low around 1.1325 during June before recovering through July and August.

EUR/USD gained 1.02% in July and is up another 1.15% so far in August, taking the exchange rate back towards 1.17.

Despite that recovery, EUR/USD remains around 0.5% lower for 2026 after beginning the year near 1.1733.

View full size

Recent euro gains have coincided with renewed pressure on the US dollar.

Reuters reported that the dollar fell to a three-month low against the euro during the past week as investors became increasingly concerned about US Treasury market conditions and the government’s expanded programme of long-dated debt buybacks.

The US currency was also hurt earlier in the week as weaker retail sales and labour-market data encouraged traders to scale back expectations for another Federal Reserve rate increase.

There is a second development potentially supporting the bullish side of the EUR/USD survey.

Markets have become increasingly hawkish on the European Central Bank as higher energy prices threaten to keep Eurozone inflation elevated.

Traders now see the ECB deposit rate potentially approaching 3% by late 2027, a substantial change from expectations earlier in the summer.

The ECB’s own June projections put average Eurozone inflation at 3.0% in 2026, largely because of higher energy prices, before easing to 2.3% in 2027 and 2.0% in 2028.

The combination of reduced expectations for Federal Reserve tightening and greater concern about further ECB rate increases has therefore shifted relative interest-rate expectations in a direction that can support EUR/USD.

EUR/USD Outlook: Consensus Higher, But 1.10–1.21 Range Shows the Risk

The latest Exchange Rates UK Research survey gives a more nuanced signal than simply “banks are bullish on the euro”.

In the near term, the median actually expects EUR/USD to trade below today’s 1.1677 level.

It is during 2027 that the central forecast becomes more constructive, with 1.18 emerging as the median Q2 target and around 1.20 by late 2027.

That would represent moderate euro appreciation rather than a dramatic Dollar decline.

The more revealing figure may be the forecast dispersion.

At Q2 2027, the surveyed banks span approximately 1.10 to 1.21.

The central 50% is much tighter at roughly 1.15–1.20, but even that range encompasses substantially different outcomes for businesses and investors exposed to the pair.

The latest market recovery towards 1.17 has already erased much of the weakness seen during June.

Whether EUR/USD can extend that move towards 1.18 and eventually 1.20 will depend heavily on whether current expectations for a less hawkish Federal Reserve and a firmer ECB survive the next round of inflation, employment and energy-market developments.

For now, the median bank forecast favours the euro over the medium term, but the consensus is for measured appreciation rather than a one-way Dollar decline.

Yen exchange rates have surrendered most intervention-led gains, leaving September’s BoJ decision and guidance on further tightening as the crucial tests.

The US Dollar to Japanese Yen (USD/JPY) exchange rate ended e week at 158.98, within touching distance of the 160 level despite the exceptional intervention conducted jointly by Japan and the United States.

The operation briefly drove USD/JPY from above 164 to around 155, but much of that Yen recovery has since been reversed.

Intervention succeeded in breaking the earlier momentum, although it did not remove the wide US-Japan interest-rate gap or the inflationary pressure created by expensive energy and a weak currency.

Attention has consequently shifted towards the Bank of Japan’s September 17–18 policy meeting.

Natixis economists Alicia García Herrero and Kohei Iwahara expect the BoJ to raise its policy rate by 25 basis points to 1.25% on September 18.

They said the central bank is “set to raise the policy rate by 25-bps” as inflation pressure strengthens.

Japanese headline inflation accelerated from 1.6% to 1.9% in July, while the measure excluding fresh food and energy also rose to 1.9%.

The more immediate concern for policymakers is the scale of imported inflation.

Yen-denominated import prices climbed 29.1% over the year, while producer-price inflation held at 7.2%, increasing the risk that companies will pass further cost increases to consumers.

Natixis expects additional quarter-point rate rises in January and July 2027, which would take the policy rate to 1.75%.

Analysts Back a September Increase

MUFG’s Derek Halpenny also expects a 25-basis-point move next month.

He said the inflation figures “back up current market pricing, and our view, that the BoJ will hike rates by 25bps” in September.

Markets have already priced a high probability of an increase, which helps explain why the Yen gained relatively little after the latest inflation release.

A widely anticipated rate move will only provide lasting support if Governor Kazuo Ueda signals that further tightening can follow within a reasonably short period.

Standard Chartered has also brought its next expected increase forward from October to September and raised its terminal-rate forecast from 1.50% to 1.75%.

The bank nevertheless doubts that policymakers can exceed already hawkish expectations, stating: “We doubt the BoJ can ‘out-hawk’ the market.”

Standard Chartered forecasts USD/JPY at 158 at the end of the third quarter and 160 at year-end, suggesting that gradual rate increases will not automatically produce a sustained Yen recovery.

Near-Term USD/JPY Forecast: Intervention Risk Caps 160

OCBC strategists Sim Moh Siong and Christopher Wong also see a stronger policy commitment as essential.

They warned: “A more meaningful and sustained JPY recovery will likely require a stronger signal from the BoJ that policy normalisation can proceed at a faster pace.”

Our base case is for USD/JPY to trade between 156 and 160 ahead of the September meeting.

A rate increase accompanied by guidance towards another move in early 2027 could push the pair below 156 and expose the intervention low near 155.20.

A cautious hike presented as an isolated response to imported inflation would leave 160 vulnerable, with a break higher bringing 162 and the pre-intervention region around 164 back into view.

Failure to raise rates would create an even greater risk of renewed Yen selling and another intervention response.

BoJ Deputy Governor Ryozo Himino’s August 27 speech and Tokyo inflation data on August 28 will provide the next domestic policy signals.

US PCE inflation and Federal Reserve Chair Kevin Warsh’s Jackson Hole address will be equally important, since a durable Yen recovery still requires some narrowing of the US-Japan rate gap.