Citigroup expects the Japanese yen to strengthen against the U.S. dollar through the end of 2027, citing a sustained pullback in overseas investment by Japanese institutions.
Japan holds the world's third-largest net foreign assets, behind Germany and China, with overseas holdings exceeding ¥1,900 trillion, according to Citi. Japanese investors executed their largest-ever repatriation of foreign assets in 2022, and outstanding foreign asset holdings have since seen a gradual recovery.
Citi said the shift is being driven by multiple investor segments. Retail investors recently fueled overseas investment growth through NISA accounts, but that momentum has slowed. Institutional investors, including pension funds, are actively reducing foreign exposure. Meanwhile, rising Japanese interest rates are expected to prompt long-term investors such as insurance companies to cut back further on overseas holdings.
The bank said the changing supply-demand dynamics for foreign assets should reduce downward pressure on the yen over time.
On the exchange rate, Citi projects a long-term ceiling for USD/JPY in the ¥160 to ¥165 range. The pair is expected to fall to around ¥155 by the end of this year and drop to approximately ¥145 by the end of next year.
