Japanese Yen: Flows and trade leave Japanese Yen exposed – BNY

Geoff Yu at BNY Mellon highlights that foreign investors are accelerating Japanese Government Bond selling while Japanese investors increase purchases of overseas bonds and equities. This flow mix weakens support for the Japanese Yen and points to further depreciation. Strong export and trade data underscore robust external demand but do not offset currency vulnerability.

Portfolio shifts pressure Japanese Yen

"Japan's portfolio flow showed foreign investors accelerated JGB selling last week, with net outflows of ¥1.25tn, cutting YTD foreign net purchases to ¥4.99tn, the lowest cumulative level since early February."

"Despite the sharp rise in JGB yields, higher returns are not drawing foreign demand, raising the risk of further bond unwinding. At the same time, Japanese investors increased overseas allocation, buying ¥1.14tn of foreign bonds and ¥1.39tn of foreign equities, the second-largest weekly equity purchase this year."

"Overall, the flow mix points in the same direction for the currency: foreign selling of Japanese bonds and stronger Japanese buying of foreign assets weaken support for JPY and leave it vulnerable to further depreciation."

"Japan’s July 2026 trade showed a sharp improvement in external demand and import momentum. Exports rose 23.2% y/y to a record July high, lifted mainly by automobiles and semiconductor-related electronic parts."

"By region, exports to the U.S. (22.0% y/y), EU (19.1% y/y) and Asia (24.5% y/y) all grew strongly, while trade with China remained in deficit at ¥775.4bn, with both exports and imports expanding."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)