Yen to Strengthen Against Dollar Amid Reduced Foreign Investment

Citi's analysts expect the Japanese yen to strengthen against the US dollar by the end of 2027 due to reduced foreign investment by Japanese institutions. The country holds the third-largest net foreign assets globally, with overseas investments 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. Retail investors have driven recent overseas investment growth through NISA accounts, but this activity has slowed in recent times.

Institutional investors, including pension funds, are reducing their foreign investments as rising Japanese interest rates prompt long-term investors to cut overseas investment further. Citi projects that the yen will face a long-term ceiling in the ¥160 to ¥165 range and expects the pair to decline to around ¥155 by the end of this year and to approximately ¥145 by the end of next year.