Japanese Yen Forecast: ING Brings BoJ Hike Call Forward to December

ING expects an earlier Japanese rate rise, but sees the Yen struggling against the US Dollar before a more durable recovery in the second quarter of 2027.

The US Dollar to Yen exchange rate ended Friday around 157.58, down 0.16%, as the Bank of Japan left rates unchanged but strengthened its assessment of underlying inflation.

ING now expects the next increase in December 2026, followed by another in March or April 2027, yet its currency outlook remains cautious about an immediate Yen recovery.

Chris Turner, ING’s global head of markets, writes: “We see it staying bid towards the top of a broad 155-160 range and then turning lower in 2Q next year.”

That places the anticipated turn in USD/JPY in April-June 2027.

The question after the BoJ meeting is how much additional support the Yen can draw from tightening that investors already expect.

Inflation progress does not settle the next meeting

The BoJ’s 30 October decision held the overnight rate at 1.25% by an eight-to-one vote, with Hajime Takata favouring an immediate increase to 1.50%.

Its updated economic outlook judged underlying inflation broadly consistent with the 2% target and highlighted upside price risks, while keeping further rate rises dependent on economic and financial developments.

Turner sees international policy as an additional reason to act sooner:

“The BoJ also gave a nod to rate hikes overseas and presumably will be aware of the risks of a weaker yen should it not track the Fed and ECB with a rate hike in December. We now think the BoJ will hike in December, with a likely follow-up in March/April.”

An increase in Japanese rates need not narrow the country’s yield disadvantage if US and European rates rise too.

That leaves room for the BoJ to tighten while the Dollar remains attractive to investors seeking higher returns.

MUFG also favours December.

In its initial response to the decision, the bank wrote:

“Overall, the BoJ’s updated policy communication struck a hawkish tone. The relatively muted market response with USD/JPY largely unchanged on the day is more a reflection that it is already well priced in.”

The pre-meeting case for a stronger Yen now has support from the BoJ’s assessment of inflation, though banks disagree on how quickly policy will follow.

Exporter buying adds support

UBS sales-desk commentator Sara Onozato gives more weight to the change in investors’ confidence that the BoJ will keep raising rates.

“For the yen, the shift is supportive: previous BOJ meetings frequently resulted in yen selling as investors questioned the central bank’s willingness to tighten policy, but more frequent rate hikes and a clearer normalization path appear to be changing that perception.”

Onozato adds:

“Exporter demand for yen and the unwinding of yen-short hedges amid weaker equities are providing additional support.”

Exporters converting overseas earnings and investors closing positions against the Yen can generate buying even before another rate increase takes place.

It offers a reason the Yen could improve sooner than ING’s broader timing suggests, particularly if weaker equity markets continue to encourage investors to reduce exposure.

Waiting for the investment plans

Crédit Agricole favours January, allowing time to assess the government’s investment plans:

“After the Cabinet approves the implementation plan for the government’s Japan Growth Strategy and the FY27 budget proposal in late December, the BoJ is expected to review economic and price developments in its Outlook Report and deliver its next rate hike in January next year.”

“Accelerating rate hikes in response to external factors while domestic demand, including investment activity, remains weak will weigh on economic growth, likely leaving FY27 growth below the government’s target.”

The economists add: “As external factors stabilise, concerns over excessive inflation should also ease, allowing subsequent rate hikes to return to a pace of roughly once every six months.”

That contrasts with the December camp’s emphasis on the danger of allowing inflation to overshoot and the Yen to weaken as other central banks tighten.

What This Means for USD/JPY

ING’s outlook allows renewed Dollar strength within its broad range before a turn lower in Q2 2027. A December hike alone would therefore be consistent with its cautious near-term Yen view.

The stronger case for an earlier Yen recovery combines credible BoJ follow-through with the exporter buying and reduced equity exposure highlighted by UBS. Disappointing Japanese guidance or renewed US yield strength would make that recovery harder to sustain.

Crédit Agricole’s January call leaves a different risk for December: the BoJ could judge that supporting domestic growth warrants waiting. If investors are still positioned for an earlier increase, that delay could weaken the Yen even while further tightening remains likely.