Citi Forecasts Yen Appreciation - Rate Against the Dollar to Rise by End of 2027

According to Citi's forecast, the Japanese yen will continue to strengthen against the US dollar through the end of 2027. The bank estimates that one of the main reasons for this will be a reduction in overseas investment by Japanese institutional investors.

According to Citi's data, Japan ranks third in the world by volume of net foreign assets, after Germany and China. The country's overseas investment volume exceeds 1,900 trillion yen.

In 2022, Japanese investors repatriated a record volume of foreign assets to the country. Since then, the volume of assets held overseas has gradually recovered.

The recent growth in overseas investment has been driven mainly by retail investors, including through NISA investment accounts. However, this activity has also slowed recently, while some pension funds and other institutional investors are reducing their foreign investments.

Rising interest rates in Japan are expected to push long-term investors, including insurance companies, toward further reducing their overseas investments.

Citi estimates that this shift will improve the balance between demand and supply for the yen in the currency market, and over time will reduce the pressure working against yen appreciation.

According to the bank's forecast, the long-term upper limit for the USD/JPY pair will be in the range of 160–165 yen. Citi expects the pair to decline to around 155 by the end of this year, and to 145 by the end of 2027.