The yen recovered some ground on Monday. The bearish chorus on the yen is growing louder after the BOJ's latest meeting reinforcing views that there's no quick fix for its structural weakness.
Wall Street strategists see the yen weakening to 160 per dollar or beyond by the end of 2026, driven by still-wide US-Japan yield gaps, negative real rates and persistent capital outflows.
Leveraged funds were the most bearish on the yen since July 2024 in the week through 9 December, according to CFTC data, and largely maintained those positions in the following week.
Japanese officials have stepped up warnings against what they describe as excessive and speculative FX moves. Still, intervention alone is not expected to lift the yen out of doldrums.
PM Takaichi sought on Thursday to ease market concerns over her expansionary fiscal policy, saying the government's draft budget maintains discipline by limiting reliance on debt.
Cabinet has approved a record $785 billion budget for the next fiscal year, aiming to strike a balance between her proactive fiscal policy and debt blowout concerns by limiting new bond issuance.
The forex market could be muted until 2026. We see the yen inch up and consolidate around 156 per dollar, with the long-term risk tilted towards the downside.
Asset recap
As of market close on 26 December, among EBC products, silver led gains. New restrictions on silver exports from China, which begin on 1 January, have created supply fears.
A surge in the price of silver to record highs this month has prompted a warning from Elon Musk that manufacturers could suffer the consequences. The metal silver is on track for its best year since 1979.
Natural gas closed out the week with a familiar end-of-year mood: thinner holiday trading, sharper day-to-day swings, and a market still trying to decide whether winter will be a slow burn or a sudden blaze.
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