Citi Sees Yen Strengthening on Reduced Foreign Investment

Citi Bank analysts are predicting a strengthening of the Japanese yen against the US dollar by the end of 2027. According to Citi, this trend is driven by reduced overseas investment from Japanese institutions.

Japan holds the third-largest net foreign assets globally behind Germany and China, with overseas investments exceeding ¥1,900 trillion. In 2022, Japanese investors executed their largest-ever repatriation of foreign assets, followed by a gradual recovery in outstanding foreign asset holdings since then.

Retail investors have driven recent overseas investment growth through NISA accounts, but this activity has slowed recently. Meanwhile, institutional investors including pension funds are reducing foreign investments, and rising Japanese interest rates will prompt long-term investors such as insurance companies to cut overseas investment further.