Global investors are growing skeptical about the yen’s near-term recovery. They believe the currency’s rapid growth could be limited due to the Japanese financial regulator’s overly cautious stance, ongoing trade tensions, and the high cost of holding the position, Reuters reports.
According to the news agency, the Bank of Japan's (BOJ) decision to keep rates unchanged this year continues to pressure the yen. However, net long yen positions, though down from April's record $15.7 billion, remain substantial at $11.41 billion.
Moreover, the low yield on Japanese government bonds, averaging just 0.5% annually, makes holding long positions in the yen significantly more expensive, especially compared to the 4% rates in the US. This imbalance poses a major risk of heavy losses if the Japanese currency weakens further, Reuters notes.
The yen’s future trajectory depends on trade negotiations. Donald Trump has cast doubt on the US-Japan trade deal, proposing tariff hikes of 30–35%. Such a move would hit auto exports hard and complicate the Bank of Japan’s efforts to roll back its ultra-loose monetary policy.