The Japanese yen is expected to stage a modest recovery in 2026, though it is likely to remain weak by historical standards after a volatile and punishing year, according to analysts at Fitch Ratings.

By the end of 2025 the currency was trading close to multi-decade lows in both nominal and real trade-weighted terms. An early rally, driven by a softer US dollar and broader gains across major currencies, faded as the year progressed. From mid-April to December, the yen lost roughly 13% on a nominal trade-weighted basis, weighed down by the Bank of Japan’s reluctance to tighten policy decisively despite persistent domestic inflation.

Fitch expects scope for some appreciation as Japan gradually normalises monetary policy while other major central banks move towards rate cuts or extended pauses. The level of JPY160 to the dollar is seen as a key psychological threshold for policymakers, reinforcing expectations of official sensitivity to further weakness.

The agency forecasts the yen will strengthen by about 6% against the US dollar this year, the largest projected gain among developed and emerging market currencies tracked by Fitch. Even so, the rebound would still leave the currency well below its long-term averages, underscoring the challenges facing Japan as global currency markets adjust to diverging policy paths.