Market News

BY John Cheng and Mia Glass

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.”