Yen Bearishness Reaches Four-Year High on Policy Concerns, BofA Survey Finds

Investor sentiment toward the Japanese yen has plunged to its most bearish level in four years, driven primarily by mounting concerns over the country's monetary and fiscal policies, according to a new survey from Bank of America Global Research.

Policy Fears Eclipse Intervention Risk

BofA's July FX and Rates Sentiment Survey found that negative sentiment on the yen has reached its most extreme point since 2022. The report highlights that investors' primary concerns are the outlook for the Bank of Japan (BoJ) and the nation's fiscal policy, which are seen as bigger drivers of weakness than interest-rate differentials or valuation.

The findings come as the dollar trades against the yen near levels last seen in 1986, keeping markets on high alert for potential currency intervention by Japanese authorities. However, the survey indicates that for now, policy fundamentals are weighing more heavily on investor minds than the threat of official action.

Speculators Hold Record Shorts

While BofA notes that overall investor positioning has only recently turned modestly bearish—suggesting broad caution—speculative markets paint a more aggressive picture. Leveraged funds are holding their largest net short yen positions since 2007, according to CFTC data cited by the bank.

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This aggressive short positioning underscores how heavily some market participants are betting against the yen. BofA suggests that the risk of intervention has likely been the only factor preventing positioning from becoming even more bearish.

Focus on Central Bank Divergence

The underlying pressure on the yen stems from the significant gap between interest rates in Japan and the United States. While the survey showed respondents believe the BoJ is the major central bank most likely to deliver more rate hikes than markets expect, the conviction remains that this tightening will not be aggressive enough to materially support the currency.

Investors are now closely watching the Bank of Japan's next policy meeting on July 30-31. Meanwhile, expectations that the U.S. Federal Reserve may keep its own rates elevated continue to provide underlying support for the dollar, reinforcing the challenging environment for the yen.