Citi Forecasts Strengthening Yen on Reduced Overseas Investment

Citi's analysts are predicting a strengthening of the Japanese yen against the US dollar through the end of 2027. The bank cites reduced overseas investment by Japanese institutions as the primary driver behind this trend.

Japan holds the third-largest net foreign assets globally, exceeding ¥1,900 trillion. In 2022, Japanese investors executed their largest-ever repatriation of foreign assets, and outstanding foreign asset holdings have been recovering gradually since then.

While retail investors continue to drive growth through NISA accounts, institutional investors are reducing foreign investments due to rising Japanese interest rates. This shift is expected to improve supply and demand dynamics, ultimately reducing downward pressure on the yen over time.

Citi projects that the pair will face a long-term ceiling in the ¥160 to ¥165 range, with the bank expecting the pair to decline to around ¥155 by the end of this year and to approximately ¥145 by the end of next year.