Yen in Peril: Wall Street Eyes 160 as Structural Outflows Persist

Despite the Bank of Japans (BOJ) attempts to normalize policy, the Japanese Yen faces a grim trajectory, with major institutions including JPMorgan and BNP Paribas forecasting a slide to 160 or lower against the Dollar by late 2026. The consensus is shifting from cyclical weakness to a narrative of “structural decline.”

Capital Flight & The Carry Trade

The core driver of yen weakness has evolved beyond simple interest rate differentials.

• Structural Outflows: Japanese households and corporates are aggressively moving capital abroad. Investment trusts have seen net buying of foreign equities hover near decade highs of ¥9.4 trillion, indicating a loss of domestic confidence that the BOJ cannot easily reverse.
• M&A Activity: Japanese corporate acquisition of foreign assets has hit multi-year highs, creating distinct selling pressure on the yen that is insensitive to minor interest rate hikes.

Policy Limits

Strategists note that while the BOJ is tightening, the pace is glacial compared to global peers. With real interest rates deeply negative and the “carry trade” finding new life involving high-yield EM currencies like the Brazilian Real, the yen remains a funding currency of choice.

Unless the Fed cuts rates far more aggressively than currently priced, or the BOJ shocks markets with rapid tightening, the path of least resistance for USD/JPY remains higher, with 165 cited as a potential extreme by late 2026.