Goldman Sachs Global Markets Daily: Japanese Repatriation Flows—What Matters Most for the Yen
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Goldman Sachs highlights that Japanese repatriation flows and overseas portfolio adjustments by domestic investors are the primary drivers of yen valuation. The report emphasizes that hedging behaviors by Japanese life insurance companies, particularly foreign exchange forward selling, exert a more pronounced influence on the yen than direct investment flows. Even with anticipated Bank of Japan rate hikes, the substantial interest rate differential between the United States and Japan is expected to persist above 300 basis points, limiting yen appreciation potential.
During the first quarter of 2026, Japanese life insurers reduced their foreign bond holdings by 12% sequentially, yet forward selling positions remain near historical highs, maintaining persistent downward pressure on the currency. Additionally, AI-related capital expenditures, such as data center construction, are driving sustained dollar demand from Japanese firms because equipment procurements are largely dollar-denominated. Rising commodity prices, particularly crude oil, further negatively impact the yen by deteriorating terms of trade and elevating energy import costs. Retail investors continue allocating funds overseas through NISA accounts, recording net purchases of 1.2 trillion yen in April 2026.
Goldman Sachs expects USD/JPY to trade within the 145-155 range during the second half of 2026. Upside risks to the yen include a potentially hawkish surprise from the Bank of Japan in July or a sudden decline in global risk appetite triggering rapid capital repatriation. Overall, the firm retains a neutral to bearish outlook on the yen.
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