Citi expects the Japanese yen to strengthen over the long term as improved capital flows support underlying demand for the currency. The bank projects the USD/JPY exchange rate to trade within a range of ¥155 to ¥160 by the end of the year, citing sustained net yen purchasing driven by increased foreign investment in Japanese equities.
Overseas investors have accelerated equity purchases in Japan, reversing a prior trend of outbound portfolio investment. This shift has contributed to the largest improvement in yen supply and demand since 2019, according to Citi’s analysis of Japan’s balance of payments data for the second quarter of 2026. Net yen purchasing has been maintained since late last year, though fiscal year-end adjustments in March temporarily weighed on demand.
The bank notes that underlying supply and demand dynamics for the yen have clearly strengthened, with long-term expectations shifting from depreciation to appreciation. Factors supporting this outlook include yen-selling hedges from foreign investors responding to rising Japanese stock prices and long-term dollar-buying hedges from Japanese small and medium-sized enterprises.
Outbound portfolio investment remains sluggish, further reinforcing the net inflow of yen as domestic investors reduce foreign asset allocations. Citi’s projections align with a broader trend of improved capital account dynamics in Japan, though near-term volatility may persist due to seasonal and positioning adjustments.
