Bank of America says the yen's weakness since 2025 has occurred only in offshore trading hours. Its strategists keep a short USD/JPY recommendation and flag 160 as a level where renewed intervention could become a consideration.
The Japanese yen's depreciation since 2025 has occurred exclusively during offshore trading hours, according to Bank of America. Analysts Shusuke Yamada and Izumi Devalier said in an October 8 research note that trading in London and New York drove the yen's weakness between the second quarter of 2025 and the second quarter of 2026.
Tokyo hours steady while offshore sessions weigh
That pattern differs from 2021 through mid-2024, when the yen depreciated during both Tokyo and overseas sessions. The analysts attributed the stabilisation during Tokyo hours to improvements in Japan's balance of payments.
For the offshore weakness, they identified the artificial intelligence-driven equity rally and the Bank of Japan's gradual monetary tightening as likely contributors. Strong Japanese equity performance encouraged currency hedging by international investors, which added yen-selling pressure. Meanwhile, expectations that the BoJ would raise rates too slowly reinforced the yen's appeal as a funding currency.
Pressures ease as sentiment shifts
However, these pressures have moderated following coordinated Japanese and US currency intervention in July and growing expectations of faster monetary tightening. Sentiment has moved too: in August, approximately 60% of surveyed investors were bearish on the yen because they believed the BoJ was behind the curve, and that share fell to 30% in September.
The research team expects the BoJ to raise its policy rate by 25 basis points in December 2026, March 2027 and July 2027, reaching 2%.
Strategists stay short USD/JPY
The strategists maintained their recommendation to short USD/JPY, arguing that the balance of risks favours yen appreciation despite continued dollar strength. They also warned that renewed currency intervention could become a consideration if USD/JPY rises above 160.
A correction in AI-related equities could further support the yen by reversing currency hedges and weakening global risk appetite. Such a downturn could also narrow interest rate differentials in the yen's favour, even if the BoJ slows its tightening cycle.
Source: Investing.com
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