The weakening of the Japanese yen since 2025 occurred exclusively during offshore trading sessions, according to Bank of America data.
The weakening of the Japanese yen since 2025 occurred exclusively during offshore trading sessions. Bank of America analysts noted that from the second quarter of 2025 to the second quarter of 2026, the currency's decline was entirely linked to trading on the London and New York platforms.
This differs from the period from 2021 to mid-2024, when the yen depreciated in both Tokyo and overseas sessions. The stabilization of the yen during Tokyo trading hours is linked to the improvement in Japan's balance of payments. The offshore weakening is explained by the rally in the stock market caused by interest in artificial intelligence, as well as the gradual tightening of the Bank of Japan's policy.
Strong results in the Japanese stock market prompted international investors to engage in currency hedging, which increased pressure on the yen. Expectations of a slow rate hike by the Bank of Japan made the yen attractive as a funding currency.
Pressure eased after coordinated currency intervention by Japan and the US in July, as well as amid growing expectations of faster policy tightening. In August, about 60 percent of surveyed investors held bearish views on the yen, and in September this share fell to 30 percent.
Analysts expect the Bank of Japan to raise the key rate by 25 basis points in December 2026, March 2027, and July 2027, bringing it to 2 percent. They maintained the recommendation to open short positions on the pair, believing that the balance of risks favors yen strengthening. Resumption of interventions may become relevant if USD/JPY rises above 160. A correction in the stock market related to artificial intelligence could additionally support the yen through the reversal of hedges and reduced risk appetite.