Bank of America Global Research flags an important shift in Yen trading during Tokyo hours.

"The yen entered a depreciation cycle in 2021, with USD/JPY reaching 164 in July 2026. However, in our view, the nature of yen weakness changed in 2025. We examine the issue through the lens of intraday USD/JPY price action. From 2021 through 2024, the yen weakened during both Tokyo and offshore trading hours. By contrast, the depreciation from 2Q25 to 2Q26 was driven exclusively by offshore trading hours," BofA notes. 

"The stabilization of the yen during Tokyo hours is consistent with an improvement in Japan's balance of payments (BoP). By contrast, offshore-led yen weakness likely reflected the AI rally and the Bank of Japan (BoJ)'s still dovish policy stance. The offshore bias toward yen weakness has been subdued since the coordinated intervention in July and the market has shifted toward a strong USD and strong USD environment.

While it remains uncertain whether yen strength in cross-yen pairs will ultimately spill over into USD/JPY, we believe the risk-reward is skewed to the downside for the pair," BofA adds.