Japanese Yen to Strengthen on Institutional Repatriation, Citigroup Forecasts

Citigroup analysts project a sustained period of strengthening for the Japanese yen, forecasting that a significant reduction in overseas investments by the nation's institutional players will support the currency against the U.S. dollar through the end of 2027.

A Shift in Capital Flows

According to a note from the bank, the primary driver for the yen's expected appreciation is a structural shift in capital flows. Japanese institutional investors, including major pension funds and insurance companies, are actively scaling back their foreign asset allocations. This trend is largely a response to rising interest rates within Japan, which makes domestic investments more attractive.

This repatriation of capital is expected to improve the yen's underlying supply-and-demand dynamics, gradually alleviating the persistent downward pressure the currency has faced. Japan is the world's third-largest net foreign asset holder, behind Germany and China, with total overseas investments exceeding ¥1,900 trillion, according to Citi data.

Market Outlook and Forecasts

Citigroup has outlined a clear trajectory for the yen's recovery, providing specific targets for the USD/JPY currency pair. The bank's analysts believe the long-term resistance for the pair is concentrated in the ¥160 to ¥165 range.

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The bank's specific forecasts include:

• A decline in USD/JPY to approximately ¥155 by the end of this year.
• A further drop to around ¥145 by the end of next year.

Context and Background

This institutional move toward repatriation marks a significant development. While retail investors had recently increased foreign exposure through NISA accounts, that momentum has reportedly slowed. The current trend is being led by long-term institutional players reassessing their global portfolios.

Japanese investors set a record for the largest-ever repatriation of overseas assets in 2022. While holdings have partially recovered since then, the renewed push by institutions to sell foreign assets suggests a more durable shift that could provide a fundamental tailwind for the yen in the coming years.