Yen Bearishness Hits Most Extreme Level Since 2022 on Policy Fears, BofA Survey Shows

Investor sentiment toward the Japanese yen has plunged to its most bearish level since 2022, as deep-seated concerns over Japan's monetary and fiscal policies now outweigh the risk of official intervention, a new Bank of America survey shows.

Survey Highlights Extreme Pessimism

According to Bank of America Global Research's July FX and Rates Sentiment Survey, pessimism surrounding the yen is at a multi-year peak. Respondents overwhelmingly cited risks from the Bank of Japan and the government's fiscal policy as the primary driver for expected weakness, placing these concerns ahead of factors like interest-rate differentials or the currency's valuation.

The findings come as the yen trades near multi-decade lows against the U.S. dollar, keeping traders on high alert for potential intervention by Japanese authorities to support the currency.

Speculators Pile on Bearish Bets

While the survey noted that broad investor positioning has only turned modestly bearish—suggesting widespread caution—speculative traders are taking a more aggressive stance. Citing data from the Commodity Futures Trading Commission (CFTC), BofA highlighted that leveraged funds are now holding their largest net short position on the yen since 2007.

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This divergence indicates that while many investors are wary of intervention, a significant segment of the market is actively betting on further depreciation, despite repeated verbal warnings from officials in Tokyo.

Policy Outlook in Focus

Investors remain skeptical that the Bank of Japan will tighten monetary policy aggressively enough to narrow the wide interest-rate gap with the United States, a key factor weighing on the yen. The central bank's next policy meeting is scheduled for July 30-31, where it is expected to update its economic and inflation forecasts.

BofA's report noted that recent comments from Japanese officials, including suggestions that the government pension fund could increase domestic bond allocations, show policymakers are increasingly sensitive to the building pressure on both the yen and the Japanese government bond market.