BofA says this is one of the main factors behind yen depreciation since last year in Daily Currencies Ratings 22/06/2026 Recent yen weakness may be driven in part by foreign investors hedging their exposure to Japanese equities, rather than a deterioration in Japan’s economic fundamentals, according to a Bank of America research note. The report said Japan’s balance of payments position has improved in recent years, supported by stronger exports and rising inward investment. Despite those developments, the yen has continued to weaken against the dollar. Analysts argued that traditional capital flow data does not fully explain the currency’s depreciation. The note estimated that foreign investors’ holdings of Japanese equities reached roughly $2.2 trillion as of March 2025, broadly matching Japanese investors’ holdings of overseas equities. Japanese stocks have significantly outperformed global markets over the past year, according to the report. That outperformance may have encouraged foreign investors to increase currency hedges on their Japanese equity positions, creating additional selling pressure on the yen. The report suggested that these hedging flows could amount to several trillion yen and may help explain the gap between the yen’s performance and underlying balance-of-payments data. The note also argued that fiscal concerns alone do not fully account for the currency’s weakness. Japan’s loan-to-deposit gap has narrowed since 2024, while domestic bank stocks have outperformed their U.S. counterparts in dollar terms, developments that analysts said point to improving financial conditions. According to the report, the yen could remain under pressure if Japanese equities continue to outperform global markets. If that equity outperformance fades, hedging-related selling may ease, and the currency could stabilize. The note also warned that a correction in Japanese stocks could trigger a temporary strengthening of the yen as investors unwind hedges. Analysts said