According to the most recent forecast accuracy rankings, Vikram Murarka, Founder and Chief Forex Strategist at Kshitij Consultancy Services who holds the top spot for USD/JPY predictions, anticipates the Japanese yen could depreciate to 170 against the US dollar next year.
The analyst's forecasting model largely disregards news events, relying primarily on technical analysis.
Murarka stated that one of his advantages lies in focusing on market signals rather than every piece of news released by Japan's Ministry of Finance or the Prime Minister's office.
His desk screens are filled with various charts tracking multiple variables, including the ratio of the Nikkei 225 to the Dow Jones Industrial Average, short-term interest rate differentials, and the relative strength of the Chinese yuan against the yen.
Murarka said, "We don't pay too much attention to the news." He also ranks second in EUR/USD forecasts using a similar approach. "Ultimately, whatever factors we track should be reflected in the price charts."
Murarka, who has been involved in forex trading and exchange rate forecasting since 1991, noted that in recent years, the ratio between the Nikkei 225 and the Dow Jones Industrial Average has shown the strongest correlation with yen movements.
He admitted he doesn't fully understand why this relationship exists, but it has proven to be a reliable indicator for predicting the yen's direction.
He stated, "Since 2024, the movement of USD/JPY has been better explained by the Nikkei-to-Dow ratio than by the US-Japan yield spread. I think this is a correlation that receives less market attention."
Despite the Japanese government's intervention between April 28 and May 27, deploying a record 11.73 trillion yen (approximately $72.3 billion) to support the currency, the yen's weakness has persisted.
The yen currently hovers around 162.84 per US dollar, near its lowest level in nearly 40 years.
The substantial interest rate differential between the US and Japan, coupled with Prime Minister Sanae Takaichi's large-scale fiscal spending plans, continues to pressure the yen.
Although the Bank of Japan raised rates last month, the Overnight Index Swap (OIS) market indicates traders expect only one more 25-basis-point hike this year, suggesting Japan's low-rate disadvantage relative to other major economies will largely remain.
Furthermore, Takaichi's preference for maintaining loose monetary policy is seen as a potential obstacle to further BOJ rate hikes.
Murarka said, "The base scenario remains continued yen weakness." He concluded, "Among all major central banks globally, I believe the Bank of Japan will be the last to take aggressive rate-hiking action."
Murarka also believes carry trades will continue to weigh on the yen.
Carry trades involve investors borrowing low-interest yen to invest in higher-yielding assets outside Japan.
Even in his most optimistic scenario for the yen, it could only appreciate to around 154 per dollar in the short term.
He stated, "170 is a reasonable target for the next year; if that level is breached, then higher targets will come into view." He added that the Ministry of Finance's "ability to change the market's direction has clearly diminished."
Meanwhile, markets are on guard for potential intervention by Japanese authorities.
Finance Minister Satsuki Katayama reiterated that she and other officials can take appropriate action in the foreign exchange market at any time.
Japan's top currency diplomat, Atsushi Mimura, did not repeat the ministry's usual stance on exchange rates this month, including the phrase "ready to take decisive action" which implies market intervention.
Katayama recently urged major pension funds, including the Government Pension Investment Fund (GPIF), to increase investment in domestic Japanese assets.
Although her remarks briefly boosted the yen, investors widely doubt the currency can sustain a rebound without changes in fiscal and monetary policy.
It is worth noting that the yen's persistent weakness, combined with the Japanese government's relatively restrained recent response, has led some market participants to speculate that this downtrend has further room to run.
Jesper Koll, Executive Director at financial services group Monex Group, and Calvin Yang, Portfolio Manager at asset management firm Blue Edge Advisors, both believe that if the BOJ falls further behind the curve in tightening monetary policy, a drop to 200 yen per dollar or lower is not impossible.
This once-unthinkable level has now become a medium-term risk, albeit still an extreme scenario.
Furthermore, T. Rowe Price, which manages $1.89 trillion in assets, views 169 yen per dollar as a worst-case scenario.
Mizuho Bank sets the bottom line at 170 yen per dollar.
Sumitomo Mitsui Financial Group, Japan's second-largest bank, outlines a possible scenario where the yen falls to 180 per dollar in the coming years.
Traders believe repeated government warnings of decisive action to curb yen depreciation are unlikely to bring lasting relief.
Many investors think that even if Japanese authorities intervene to support the yen, it would only temporarily slow the decline, as the market widely judges Japan to be slow in raising rates to curb inflation, forming a structural factor for long-term yen weakness.
Market Intervention as a Temporary Fix
Since May, the yen has continued to weaken against the dollar, coming just one month after the authorities' last market intervention.
Between April 28 and May 27 this year, after the yen first broke through 160 per dollar, the government spent a record 11.73 trillion yen intervening in the market.
However, as with interventions in 2022 and 2024, these measures ultimately provided only temporary relief before the yen resumed its long-term depreciation trend.
Analysis indicates this phenomenon reflects the market's growing desensitization to traditional intervention methods. As long as the US-Japan interest rate gap is not fundamentally resolved, intervention "can only be a temporary remedy."
This has prompted some investors to further increase their short yen positions, even though they know the authorities could intervene at any time using their substantial foreign exchange reserves of up to $1.09 trillion to support the beleaguered currency.
Why Intervention Struggles to Reverse Yen Weakness
Fundamentally, the forces driving yen depreciation are not from "speculative raids" but from the sustained resonance of three deep-seated structural factors.
First, the US-Japan interest rate gap is a formidable chasm.
Since the outbreak of the Middle East conflict, expectations for Federal Reserve interest rates have undergone a dramatic reversal—from market bets on rate cuts at the start of the year to traders now pricing in the possibility of hikes by the end of 2026.
In contrast, although the Bank of Japan is slowly normalizing monetary policy, the interest rate differential between the US and Japan remains at historically wide extremes, constituting the core macro factor pressuring the yen.
Second, energy shocks expose Japan's structural vulnerabilities.
As one of the world's largest energy importers, Japan is highly dependent on Middle Eastern crude oil.
Following disruptions to shipping through the Strait of Hormuz due to US-Iran conflict, surging oil prices combined with a weak yen have created "double imported inflation" pressure.
This "cost-push inflation" fails to boost consumption and instead erodes corporate profits and household purchasing power.
Third, the Bank of Japan's "slow pace" is testing market patience.
With inflation having exceeded the 2% target for many consecutive months, the BOJ's rate hike pace is widely viewed by the market as "too cautious."
Furthermore, the most hidden yet critical constraint on Japanese rate hikes comes from the political sphere.
Prime Minister Sanae Takaichi's policy preferences continue the legacy of "Abenomics," strongly advocating for maintaining loose fiscal and monetary policy environments, believing low rates and easy conditions are the only cure for Japan's economy, and explicitly opposing rate hikes.
Therefore, Japanese authorities' intervention measures can only influence the pace of the yen's depreciation against the dollar but cannot alter the downtrend.
Only when expectations for rate hikes by major central banks like the Federal Reserve and the European Central Bank fully recede or even turn to cuts, coupled with the Bank of Japan accelerating rate hikes and ending government bond purchases, can the Japanese government's currency interventions achieve their intended effects.
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