The Japanese yen is poised for stabilization as the Bank of Japan continues its monetary tightening cycle, according to BNP Paribas analysts. The French bank projects Japan’s GDP growth will decelerate sharply to just 0.5% in 2026, down from 1.1% in 2025, as ongoing energy price pressures drag on economic activity. Despite the growth slowdown, inflation is forecast to remain persistently above the BoJ’s 2% target through at least 2028, giving the central bank room to maintain its hawkish policy stance.
The outlook creates a divergent scenario where slowing growth meets sustained inflation, a challenging mix that typically supports currency strength as central banks prioritize price stability. For yen traders, this suggests reduced downside volatility compared to recent years when ultra-loose monetary policy weakened the currency. The persistent inflation backdrop removes immediate concerns about policy reversal, even as economic momentum fades.
FXnCO Insight
Position for yen stabilization with reduced carry trade appeal as BoJ policy normalization continues despite growth headwinds, favoring range-bound JPY pairs over directional plays.
Source: FXStreet