MUFG Research discusses the JPY outlook and expects a turning point for JPY direction towards sizeable strength over the coming weeks.

"Two aspects of yen flows that continue to weigh on the yen have less to do with rate spreads. The first relates to the policy decision made by the government to triple the size of the NISA limit for Japanese households. That massive increase in the tax-free savings limit has seen a sharp increase in outflows from Japan. 

The second aspect relates to FDI flows. This is another flow that is a lot less about rates and more about structural changes in Japan’s economy. The BoJ’s full edition of the ‘Outlook for Economic Activity and Prices’ was released on Monday and made reference to the acceleration in Japan’s population decline, which fell 2.5% in 2025 versus 2020, the largest 5-year decline on record in data back to 1920," MUFG notes.

"We still suspect the yen is close to a turning point and market rates and/or policies by the government to encourage greater sums of capital to remain in Japan should have a positive impact on the yen. Rate spreads still matter for the yen, but as can be seen from rates and FX moves since late September, not always," MUFG adds.