Citibank Sees Major Yen Supply-Demand Improvement, Eyes Appreciation

Citibank Highlights Significant Yen Supply-Demand Improvement

Citibank reports a significant improvement in Japan's balance of payments, marking the largest enhancement in yen supply-demand dynamics since 2019. This is primarily due to sustained foreign investment in Japanese equities, signaling potential long-term appreciation for the yen.

Overview of Yen Market Situation

Since late last year, foreign investors have consistently increased allocations to Japanese stocks, driving high net yen purchases. Despite a Q1 dip from fiscal year-end adjustments, foreign inflows resumed in Q2. Citibank notes persistent sluggishness in outward securities investment, further strengthening yen fundamentals.

Economic and Market Impact

These strengthening yen fundamentals suggest a reversal from its prolonged depreciation to an appreciation phase. Earlier, foreign investors hedging against rising Japanese stock prices and Japanese SMEs' long-term dollar buying contributed to USD/JPY's upward pressure. Citibank projects USD/JPY to fluctuate within ¥155-¥160 by year-end.

Conclusion

The improved yen supply-demand balance, driven by foreign equity interest and subdued outward investment, indicates a potential long-term shift towards yen appreciation. Close monitoring of capital flows is advised.

FAQ

Q: What is driving the improvement in yen supply and demand?

A: The primary drivers are continuous foreign investor inflows into Japanese equities and persistent low outward securities investment.

Q: What is Citibank's long-term outlook for the yen?

A: Citibank anticipates a shift from long-term yen depreciation to appreciation.

Q: What is Citibank's year-end forecast for USD/JPY?

A: Citibank expects the USD/JPY rate to trade between ¥155 and ¥160 by year-end.

Source: Investing.com