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

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.