Bank of America (BofA) analysts provided insights into the Japanese yen’s performance, noting that Japan’s balance of payments indicates domestic institutions and households are supplying more yen than they are demanding.
The USD/JPY currency pair has seen its year-to-date decline primarily during London trading hours, while remaining relatively stable in Tokyo and New York trading hours.
According to the Commitments of Traders (CFTC) statistics, the market is currently long yen, with speculative yen positioning at an all-time high. BofA has anticipated strength in the Japanese yen during the first quarter of 2025, attributing it to temporary uncertainties in U.S. trade policy.
The resilience of the U.S. economy is considered a crucial factor for the future performance of the JPY. BofA analysts suggest that a weakening U.S. economy could negatively impact USD/JPY in New York trading hours. Additionally, a combination of a weaker U.S. dollar and lower U.S. equity markets could challenge retail investors’ positioning in unhedged U.S. equities.
Conversely, should the U.S. economy demonstrate resilience, it could lead to an unwinding of long yen positions, potentially resulting in a rebound in the USD/JPY exchange rate. BofA maintains this scenario as their base case, implying a potential shift in the currency pair depending on the economic developments in the United States.
