IMES Discussion Paper Series (2026)

What the desk is arguing

The desk posits that the prolonged low interest rates in Japan are leading to real economic distortions, particularly in the housing sector. This view is supported by recent research from Hausman et al., which highlights the significant effects of nominal interest rates on economic activity, particularly in the context of mortgage lending and housing prices.

The authors argue that as nominal rates remain low, the real effects on housing and consumer behavior are becoming more evident. This aligns with the broader narrative of Japan's economic struggles under a low-for-long monetary policy, which has implications for the JPY as traders assess the potential for shifts in monetary policy.

Where it sits in our coverage

Our consensus target for USD/JPY is 1.075, with a range between 1.04 and 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.08 (Mar26)

This desk's view aligns with jpmorgan's target, which sits at the upper bound of the consensus range, indicating a bullish outlook on the JPY amidst the current economic conditions.

How other firms see it

Firms like jpmorgan and citi share a similar bullish outlook on the JPY, suggesting that the current economic conditions may lead to a strengthening of the currency. Conversely, bofa holds a more bearish stance, predicting a weaker JPY in the near term.

Traders should keep an eye on the USD/JPY trajectory, as it is likely to be influenced by upcoming economic indicators, particularly the GDP growth rate and balance of trade figures.

What the calendar says

With the GDP Growth Rate and Gross Domestic Product data scheduled for release on May 19, traders should be prepared for potential market movements in response to these figures, particularly as they relate to the ongoing discussion around Japan's low interest rate policy.