Bearish Yen Sentiment Persists Amid Fiscal Risks and Structural Selling Flows

The bearish sentiment towards the Japanese yen remains strong due to several factors. BofA Global Research attributes this to investors' focus on fiscal risks under Prime Minister Sanae Takaichi, as well as perceptions that the Bank of Japan is behind the inflation curve.

Persistent structural yen-selling flows have also contributed to the bearish view, but these pressures have been somewhat offset since mid-2025 by foreign investment into Japan and demand linked to artificial intelligence exports. Currency hedging by overseas investors, particularly as Japanese equities rose, may have played a more significant role in weakening the yen.

A coordinated intervention between Japan and the U.S. could challenge the market's bearish view, especially after the July 30 operation demonstrated a strong commitment to supporting the currency, with reduced perceived limits on authorities' intervention capacity. US Treasury Secretary Scott Bessent stated that Washington would 'not hesitate to participate in further joint intervention', raising the prospect of more coordinated action.