Among the major currencies making up the US Dollar Index, the Japanese Yen has quietly become 2026's biggest winner, and analysts at DBS Group Research believe the move against the Dollar is far from finished. USD/JPY has dropped beneath the 156.70 level it closed at the end of 2025, and DBS economist Philip Wee argues that a broken technical trendline means the pair could fall further from here.
From laggard to leader
For much of Trump's second term, the Yen struggled to hold its ground even during bouts of market stress, a sign that its old reputation as a haven currency was under strain. That picture has now flipped. Wee's note shows the Yen has climbed 1.5% against the Dollar so far this year on an overnight basis, enough to make it the best performing currency inside the DXY basket in 2026. Slipping below the 156.70 mark it held at the close of last year is a milestone on its own, but Wee points to a bigger technical development: USD/JPY has broken through a major trendline, a shift chart watchers read as opening up more room for the pair to fall rather than bounce back toward its old range. The DXY basket weighs the Dollar against six major peers, with the Euro carrying the largest share and the Yen the second largest, so a move of this size registers clearly across the index as a whole.
The intervention that reset the floor
Much of the shift traces back to late July, when the United States and Japan carried out a joint intervention in the currency market. Wee calls it a turning point. "The joint US-Japan intervention in late July was a game changer that established a stronger official backstop against disorderly JPY depreciation," he said. In practical terms, a joint intervention signals that Washington and Tokyo are both willing to act together to stop the Yen from sliding too fast or too far, which reduces the incentive for traders to keep betting against it. That kind of coordinated official support tends to linger in the market's memory long after the intervention itself has ended, because it raises the risk of standing in front of the two governments again. Policymakers in Tokyo have historically worried less about the Yen's direction than about the speed of its swings, since abrupt moves complicate import costs and corporate earnings forecasts for exporters.
Washington inherits the fiscal worry
A second shift came from the US Treasury. On August 18, Treasury Secretary Scott Bessent announced plans to double buybacks of long-dated US Treasuries. According to Wee, that decision effectively moved fiscal deficit worries off Tokyo's desk and onto Washington's. For months, part of the pressure on the Yen had stemmed from unease over Japan's own government borrowing; with Bessent's buyback plan now drawing attention to the scale of US debt issuance instead, that particular headwind for the Yen has eased, even as it raises fresh questions about Washington's own fiscal picture.
A fading carry trade restores the Yen's haven appeal
The most significant piece of the puzzle, in Wee's view, is that the Yen's gains are not limited to the Dollar alone. He describes this broadening as weakening the carry trade, the strategy in which investors borrow in a low-yielding currency like the Yen to fund purchases of higher-yielding assets elsewhere. When that trade is popular, it keeps a lid on the Yen because investors are constantly selling it to fund other bets; when it unwinds, as Wee says is happening now, those same investors buy back Yen to close out their positions, adding fresh upward pressure. Wee notes that this carry trade had been undermining the Yen's traditional status as a haven currency through much of Trump's second term, and that its unwinding is now helping restore that role.
What DBS is watching next
Put together, DBS reads these threads as pointing toward continued Yen strength rather than a quick reversal. The trendline break argues for more downside in USD/JPY on the charts, the late July intervention has raised the cost of betting against the Yen, the fiscal spotlight has shifted to Washington rather than Tokyo, and a fading carry trade is doing the work that used to fall on the Yen's own haven credentials. None of the four is treated as noise in the note, and together they explain why a currency that had been out of favour is now the standout gainer inside the Dollar Index this year. For a currency that spent much of the past two years near multi-decade lows, the shift marks a striking turnaround.
