Citi: Yen likely to strengthen as Japanese institutions cut overseas investment

# Quick summary Citi expects the Japanese yen to strengthen against the U.S. dollar over the next year as Japanese investors — especially institutions — reduce overseas allocations. The bank points to Japan's very large stock of foreign assets and to changes in investor behaviour since the large repatriation event in 2022. Citi's forecast spots a near-term move toward ¥155 on USD/JPY by year-end and a further move to about ¥145 by the end of 2027, while setting a long‑term ceiling in the ¥160–¥165 range.

# Background: Japan's foreign assets and recent flows Japan holds one of the world's largest net foreign asset positions, behind Germany and China. Citi says outstanding overseas investments exceed ¥1,900 trillion. In 2022, Japanese investors carried out the largest-ever repatriation of foreign assets. Since then, those holdings have been rebuilding only gradually.

Retail demand through tax-advantaged NISA accounts helped lift overseas investment in recent years, but that retail-driven growth has slowed. The change that matters to Citi is among institutional investors — pension funds, insurers and other long-term holders — which are trimming their foreign exposure.

# Why reduced foreign investment lifts the yen

# Citi's exchange-rate projections Citi frames its view with three reference points:

• Long-term ceiling for USD/JPY: ¥160–¥165.
• End-of-year target (current year): around ¥155.
• End-of-next-year target (end-2027): roughly ¥145.

These levels reflect the bank's view of how supply-demand for yen will change as institutional allocations to foreign assets decline.

# Market implications and transmission A sustained reduction in Japanese overseas investment could:

• Encourage reversal of some carry-trade positions if yields and allocations shift.
• Influence cross-rate moves (EUR/JPY, GBP/JPY) as yen strength feeds through to other pairs.

# What to watch next

• Flow data on Japanese residents' overseas asset purchases and sales, particularly institutional flows.
• Domestic yield moves: rising yields in Japan that keep long-term investors at home would support Citi's thesis.
• Retail NISA activity: any renewed appetite for foreign assets among retail investors would offset institutional reductions.
• USD/JPY movement around the ¥160–¥165 range, which Citi identifies as a structural ceiling in its view.

# Bottom line Citi's view is structural rather than event-driven: if Japanese institutions continue to cut back on foreign investments while domestic yields rise, the bank expects USD/JPY to trend lower through 2027, with a long-term ceiling in the mid-¥160s and potential targets near ¥155 this year and ¥145 next year.