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Yen Bearishness Reaches Four-Year High on Policy Concerns, BofA Survey Shows
Summary
Investor sentiment toward the Japanese yen has soured to its most bearish level in four years, a new Bank of America survey shows, as doubts over the country's policy path outweigh the risk of official intervention.
Investor sentiment toward the Japanese yen has deteriorated to its most bearish level in four years, driven by persistent concerns over Japan's monetary and fiscal outlook, according to a Bank of America Global Research survey. The findings suggest that fears of an inadequate policy response from Tokyo now outweigh the risk of direct currency intervention by authorities.
Survey Highlights Policy Doubts
Bank of America's July FX and Rates Sentiment Survey revealed that yen bearishness has reached its most extreme point since 2022. Respondents overwhelmingly cited risks related to the Bank of Japan (BoJ) and the nation's fiscal policy as the primary reasons for expecting further currency weakness.
These policy concerns have eclipsed other factors, such as narrowing interest-rate differentials or valuation arguments, in shaping investor outlook. The report noted that while overall investor positioning has only recently turned modestly bearish—likely due to caution over intervention—the underlying sentiment is decidedly negative.
Speculators Build Record Shorts
While general market positioning remains cautious, speculative traders have taken a more aggressive stance. According to BofA's analysis of CFTC data, leveraged funds are currently holding their largest net short yen positions since 2007.
AdThis highlights a significant divergence, where hedge funds and other speculators are heavily betting against the yen despite repeated warnings from Japanese officials. BofA suggests the constant threat of intervention has likely prevented these bearish positions from becoming even larger.
Central Bank Policy in Focus
The negative sentiment comes as the dollar-yen exchange rate hovers near levels last seen in 1986, keeping markets on high alert. Investors remain skeptical that the BoJ will tighten monetary policy fast enough to close the wide interest-rate gap with the United States, a key driver of yen weakness.
According to the survey, respondents now see the BoJ as the major central bank most likely to deliver more rate hikes than markets currently price in. However, many still believe its policy normalization will be too slow to materially support the currency. All eyes are on the BoJ's next policy meeting on July 30-31, where it is expected to update its economic forecasts.