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BofA says equity hedging may explain JPY weakness, sees risk-reward favouring long JPY

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  • BofA says equity-related FX hedging may have been a key downside force for the yen since 2025, with JPY weakness difficult to explain through balance of payments, rate differentials or fiscal risks alone.
  • The bank estimates hedging flows may have exerted around 10% downside pressure on JPY, while broadly supporting other G10 currencies, particularly SEK, CHF, CAD and AUD, during the AI-led equity rally.
  • BofA says near-term caution on US and Japanese equities, plus potential JPY-buying intervention, supports long JPY exposure, while it remains tactically cautious on CAD and CHF and favours downside in CHF/JPY and CAD/JPY.

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