Summary
In our main scenario for 2026 we expect 1) the dollar to weaken as the Fed moves to ease monetary policy during inflation, 2) a resumption and continuation of BOJ rate hikes aimed at countering inflation to curb yen weakness, but 3) fiscal concerns to prevent a shift toward aggressive yen buying. We expect the roughly 10-yen rise in the USD/JPY following the LDP leadership race in October to unwind, but the yen is likely to face upside resistance beyond that point.