Japanese Yen Outlook 2026: Is It 20% Undervalued or Headed to 165?

Record intervention — and limited remaining capacity

Japan's Ministry of Finance confirmed it spent a record 11.7 trillion yen — approximately $73.6 billion — on yen-buying intervention between April 28 and May 27, 2026 . This was Japan's first market intervention since 2024, triggered after the yen slid past 160 per dollar . Despite the massive size—the largest monthly intervention figure in Japan's history—the intervention had limited sustained success; the yen quickly returned to levels that prompted the action in the first place .

The critical constraint going forward is an IMF guideline: Japan can conduct only two more sessions of three-day interventions by November 2026 if it wants to maintain its IMF designation as having a freely floating exchange rate . Japan has already used one such multi-day window (three consecutive interventions during Golden Week that counted as a single session), leaving it with just two remaining windows . However, some officials note that IMF regulations do not strictly restrict the frequency of interventions, and the Japanese government remains ready to take "decisive" action as the yen trades in the lower 160 range .

What drives the divergence

The core disagreement between Yamasaki and Goldman Sachs comes down to one question: Will the U.S.-Japan interest rate differential narrow enough to make the yen attractive? The Federal Reserve has maintained a hawkish stance while the Bank of Japan has only gradually and modestly raised rates, keeping real Japanese interest rates deeply negative and fueling the yen carry trade . Goldman Sachs expects this dynamic to persist, while Yamasaki and other Japan-watchers argue the yen's weakness has overshot fundamentals and must eventually correct. Other strategists are split too: J.P. Morgan projects year-end USD/JPY at 164, while ING forecasts a decline to 153 and Scotiabank targets 150 .

Bottom line

The yen outlook is deeply divided. Former FX chief Yamasaki argues for a fair value near 130—implying the yen is about 20% undervalued—and warns that intervention risk for speculators is real. Goldman Sachs counters that the fundamental drivers (U.S. yield advantage, BOJ gradualism, carry trade demand) will push the yen to 165. Japan has spent a record $73.6 billion defending the yen with limited lasting effect and now has only two remaining IMF-compatible intervention windows through November. The current spot near 162 is already within Goldman's three-month target range, and the resolution depends heavily on the BOJ rate path, Fed policy, and whether Tokyo is willing to breach IMF guidelines to intervene more aggressively.