Barclays estimates that the Japanese yen, which has strengthened rapidly in recent weeks, could reverse course and weaken back into the upper 150s per dollar if expectations that the Bank of Japan, or BOJ, will accelerate interest rate hikes and that Japanese pension funds will shift investments back into domestic assets fail to materialize. Barclays' strategist team, including Shinichiro Kadota, said in a Thursday report that the yen's latest appreciation was driven by expectations that the BOJ will tighten monetary policy, speculation about pension fund portfolio rebalancing, and technical factors in the market. Although the dollar-yen pair breaking below the key support level around 155 yen per dollar gives the yen room to strengthen further in the short term, Barclays believes the structural factors weighing on the yen have not changed significantly. The view comes after the yen strengthened nearly 4% this month, touching its strongest level since February, as the market increased the odds of a BOJ rate hike at next week's meeting and speculated that the Government Pension Investment Fund, or GPIF, may adjust its asset allocation by increasing domestic investment. US Treasury Secretary Scott Bessent has also signaled support for a stronger yen. In Thursday afternoon trading in Asia, the yen strengthened about 0.1% to 153.45 yen per dollar. Barclays warns that if the yen is to strengthen further from current levels, the BOJ may need to signal or implement policy tighter than the market expects, since expectations for a BOJ rate hike are already high, and it believes the market may be overestimating the impact of GPIF's investment shift, which would leave the yen at risk of weakening again if the fund does not adjust its allocation as the market expects. In addition, several fundamentals still do not support a sustained yen appreciation, including the interest rate differential between Japan and other countries, the risk premium on Japanese equities, concerns over the policies of Prime Minister Sanae Takaichi, and structural yen-selling flows.
Barclays PLCBarclays' strategist team issued the FX forecast warning about yen weakness; no direct financial impact on Barclays itself.
GPIF is discussed as a potential driver of yen strength via portfolio rebalancing, but no actual allocation change is reported.
