(Bloomberg) — The bearish chorus on the yen is growing louder after the Bank of Japan’s latest interest rate hike failed to deliver a sustained lift to the currency, reinforcing views that there’s no quick fix for its structural weakness.

Strategists at JPMorgan Chase & Co., BNP Paribas SA and other firms 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. The trend will likely persist as long as the BOJ tightens only gradually and fiscal-driven inflation risks linger, they say.

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This year the yen eked out a small gain of less than 1% against the greenback after four straight years of declines, as a hoped-for turnaround on the back of BOJ rate hikes and Federal Reserve cuts proved underwhelming. The currency briefly strengthened past 140 per dollar in April before losing momentum amid uncertainty over US President Donald Trump’s tariff policies and rising fiscal risks tied to political shifts in Japan. It’s now trading around 155.70, not far from this year’s low of 158.87 — around where it began the year in January.

“The yen’s fundamentals are quite weak, and that should not be changing much going into next year,” said Junya Tanase, chief Japan FX strategist at JPMorgan, who holds the most bearish end-2026 dollar-yen forecast on Wall Street at 164. He said cyclical forces could turn more yen-negative next year, limiting the impact of BOJ tightening as markets price in higher rates elsewhere.

Overnight index swaps show the next BOJ rate hike isn’t fully priced in until September, while inflation remains above the central bank’s 2% target, adding pressure on Japanese government bonds.

Carry trades have also re-emerged as a headwind. The popular strategy of borrowing the low-yielding yen to invest in high-yielders such as the Brazilian real or Turkish lira has made it harder for the Japanese currency to rebound. Leveraged funds were the most bearish on the yen since July 2024 in the week through Dec. 9, according to Commodity Futures Trading Commission data, and largely maintained those positions in the following week.

Risk Tolerance

Global macro conditions next year should be “relatively supportive for risk sentiment, and typically in that environment that we think would benefit carry strategies,” said Parisha Saimbi, EM Asia FX and rates strategist at BNP Paribas, who expects the dollar-yen to rise to 160 by the end of 2026. Resilient carry demand, a cautious BOJ and a potentially more hawkish-than-expected Fed could keep the pair elevated, she added.

Japan’s outbound investment flows remain another source of pressure. Retail investors’ net purchases of overseas stocks via investment trusts have hovered near last year’s decade-high of ¥9.4 trillion ($60 billion), underscoring households’ continued preference for foreign assets — a trend analysts say could persist into 2026 and weigh on the yen.

Corporate outflows may be an even more durable driver. Japan’s outward foreign direct investment has continued at a steady pace in recent years, largely unaffected by cyclical factors or rate differentials, BofA Securities chief Japan FX and rates strategist Shusuke Yamada wrote in a note earlier this month. In particular, outward M&A volumes by Japanese firms have hit multi-year highs this year, he wrote.

“The weak yen situation hasn’t changed at all. The key point is that the BOJ isn’t hiking rates aggressively, and real interest rates remain deeply negative,” said Tohru Sasaki, chief strategist at Fukuoka Financial Group Inc., who sees the dollar-yen pair reaching 165 by end-2026. “I think the Fed is pretty much done with rate cuts. If the market starts pricing that in, it would become another factor pushing up dollar-yen.”

Still, some yen watchers remain convinced that the currency will appreciate over the longer term as the BOJ continues to normalize its policy. Goldman Sachs Group Inc. sees the yen eventually strengthening toward 100 per greenback over the next decade, while acknowledging that there are multiple near-term negatives.

Risks of official intervention are also back in focus as the yen trades near levels that previously triggered action. Japanese officials, including Finance Minister Satsuki Katayama, have stepped up warnings against what they describe as excessive and speculative FX moves. Still, intervention alone is unlikely to lift the yen out of doldrums, analysts say.

“Overall, the market remains jittery and volatile, and ‘smoothing’ operations alone might not be able to alter the yen’s depreciation trend,” said Wee Khoon Chong, senior APAC market strategist at BNY. “The near-term market focus remains on the government’s forthcoming fiscal strategy.”

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