Yen Bearishness Hits Four-Year High on Policy Fears, BofA Survey Shows

Investor sentiment toward the Japanese yen has soured to its most bearish level in four years, driven by mounting concerns over Japan's monetary and fiscal policies that overshadow the risk of official currency intervention, a new Bank of America survey shows.

Policy Worries Outweigh Intervention Threat

According to Bank of America Global Research's July FX and Rates Sentiment Survey, yen bearishness has reached its most extreme level since 2022. Respondents overwhelmingly cited risks related to the Bank of Japan (BoJ) and the nation's fiscal outlook as the primary reason for expecting further weakness.

These policy concerns ranked ahead of other factors, such as narrowing interest-rate differentials or valuation arguments, in driving the negative sentiment. The findings come as the U.S. dollar trades against the yen near levels last seen in 1986, keeping traders on high alert for potential action from Tokyo.

Speculative Bets Reach 17-Year Peak

While the survey found overall investor positioning has only recently turned modestly bearish—suggesting broad caution—speculative traders are making much larger bets against the currency. Bank of America, citing CFTC data, noted that leveraged funds are holding their largest net short yen positions since 2007.

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This aggressive positioning underscores how heavily some market participants are betting on continued yen depreciation. BofA suggests the constant threat of intervention has likely prevented these positions from becoming even more extreme.

Central Bank Divergence in Focus

Investors remain skeptical that the Bank of Japan will tighten monetary policy aggressively enough to close the wide interest-rate gap with the United States, where the Federal Reserve is expected to keep rates elevated. This policy divergence continues to underpin the dollar and exert pressure on the yen.

BofA's report also highlighted that Japanese policymakers appear increasingly sensitive to market pressures, pointing to recent official comments suggesting Japan's Government Pension Investment Fund (GPIF) could increase its allocation to domestic bonds. All eyes are now on the Bank of Japan's next policy meeting on July 30-31, where officials will update their economic and inflation forecasts.