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

Investor sentiment toward the Japanese yen has plunged to its most bearish level in four years, as deep-seated concerns over Japan's monetary and fiscal policies overshadow the persistent threat of currency intervention, a new Bank of America survey shows. The findings come as the dollar continues to trade against the yen near levels last seen in 1986, keeping markets on high alert.

Survey Cites Policy as Primary Concern

According to Bank of America Global Research's July FX and Rates Sentiment Survey, yen bearishness has reached an extreme not seen since 2022. Respondents overwhelmingly cited risks related to the Bank of Japan (BoJ) and the nation's fiscal outlook as the main drivers for their negative view.

These policy fears have taken precedence over other factors, such as narrowing interest-rate differentials or valuation arguments, in shaping investor expectations for further yen weakness, the report noted.

Speculators Ramp Up Bearish Bets

While BofA found that overall investor positioning has only recently turned "modestly bearish"—suggesting broad caution due to potential government intervention—speculative traders have adopted a far more aggressive stance. The risk of intervention has likely prevented positioning from becoming even more extreme, the bank said.

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Citing data from the Commodity Futures Trading Commission (CFTC), BofA highlighted that leveraged funds are now holding their largest net short yen positions since 2007. This indicates a significant portion of the market is actively betting against the currency despite repeated warnings from Japanese officials.

Market Eyes Central Bank Divergence

The deeply negative sentiment is rooted in the wide policy chasm between the U.S. Federal Reserve, which is expected to keep rates elevated, and a more cautious Bank of Japan. This divergence continues to underpin the U.S. dollar's strength against the yen.

Although BofA's survey found that investors now view the BoJ as the major central bank most likely to deliver more rate hikes than markets currently expect, the consensus is that this policy normalization will not be fast enough to materially support the currency. All eyes are now on the Bank of Japan's next policy meeting on July 30-31 for any new signals.