Rainer Michael Preiss – Global Markets Commentary
February 2026 | Singapore
Executive Summary
After one of the longest depreciation cycles in modern FX history, the Japanese yen (JPY) enters 2026 at an inflection point. While structural headwinds remain, the balance of risks is shifting. Incremental policy normalisation by the Bank of Japan, a maturing U.S. interest-rate cycle, and elevated global geopolitical and market volatility are restoring the yen’s role as a hedge and safe-haven currency.
Macro Context
The yen’s pronounced weakness from 2021 to 2024 was driven primarily by extreme interest-rate divergence, as the U.S. Federal Reserve tightened aggressively while Japan maintained ultra-accommodative monetary policy. By 2026, Japan has exited negative interest rates, inflation has proven more persistent than initially expected, and global growth momentum is slowing. This represents a regime shift from a one-directional “sell yen” environment to a more balanced, tactical FX landscape.
Bank of Japan Policy Outlook
The Bank of Japan is expected to proceed cautiously with further policy normalisation. While no aggressive tightening cycle is anticipated, even modest increases in short-term rates and greater tolerance for higher government bond yields carry significant signalling power after decades of accommodation. Market sensitivity to BoJ communication remains high, making policy guidance a key driver of yen volatility in 2026.
Sell-Side Bank Forecasts
Major global investment banks broadly agree that the worst of yen weakness is likely behind us, though expectations for a sustained structural bull market (still)remain limited.
Goldman Sachs expects USD/JPY to drift lower as U.S. growth cools and real yield differentials narrow, with a base-case range of 135–145. UBS views the yen as a late-cycle hedge, forecasting episodic strength during periods of global market stress.
JPMorgan remains more cautious, expecting range-bound trading and emphasising that yen strength is likely to be cyclical rather than structural.
Nomura highlights domestic wage dynamics and potential repatriation flows, noting downside risk to USD/JPY should Japanese inflation surprise to the upside.
2026 Scenario Analysis
- Base Case (50% probability): USD/JPY stabilises in a 135–145 range as global growth slows and BoJ normalisation continues gradually.
- Bull Case (25% probability): USD/JPY moves toward 125–130, driven by global risk aversion, faster BoJ tightening, and strong safe-haven flows.
- Bear Case (25% probability): USD/JPY exceeds 150 if global risk appetite remains strong and U.S. yields stay higher for longer.
Portfolio Implications
For global and private-wealth portfolios, the Japanese yen increasingly functions as a diversification and risk-management tool rather than a pure funding currency.
Tactical exposure to JPY can provide portfolio protection during periods of heightened volatility, though structural constraints argue against aggressive long positioning absent a global downturn.
Conclusion
The Japanese yen in 2026 is no longer a consensus short, but neither is it a structural long. The most likely outcome is a range-bound environment with asymmetric upside during stress episodes. Investors should view JPY exposure as a strategic hedge and tactical allocation within a diversified global portfolio.
Singapore Disclaimer
This document is issued for information and educational purposes only and does not constitute investment advice, research, a recommendation, or an offer or solicitation to buy or sell any securities, foreign exchange instruments, derivatives, or other financial products.
The views expressed are those of the author as at the date of publication and are subject to change without notice. They do not take into account the specific investment objectives, financial situation, or particular needs of any individual or entity. Recipients should exercise independent judgment and, where appropriate, seek advice from a licensed financial adviser. This publication has not been reviewed by the Monetary Authority of Singapore (MAS). Past performance is not indicative of future results. Foreign exchange markets involve significant risk, including the potential loss of capital.
Rainer Michael Preiss
Partner & Portfolio Strategist — [email protected]
Rainer Michael Preiss is a German national and an investment advisor based in Singapore. He has over 25 years of experience in global private banking and multi-family office business across Europe, Middle East, Africa and Asia. Michael was previously the Chief Equity Strategist at Standard Chartered Bank (SCB) where he was one of seven voting members on the Global Investment Council which decided on SCB’s global investment policy. He is also a prolific and renowned contributor to the financial media world where he is a columnist for Forbes and is frequently featured on Bloomberg, CNA and CNBC.
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