Countdown to a comeback! The yen may become the best-performing currency next year, with gold and the US dollar close behind

A Bank of America survey shows that global investors believe the yen will outperform other major currencies next year, expecting it to rebound after a turbulent year—this year, the yen against the US dollar has had the worst return among major currencies.

Among the approximately 170 fund managers surveyed by the bank, about one-third said the yen would deliver the best returns next year, followed by gold and the US dollar. Only 3% of respondents listed the pound as their preferred currency.

Given the yen's weak performance this year, its prominent position in the survey is noteworthy. The yen has risen only 1% against the US dollar, making it the worst-performing currency in the G10 group.

Meanwhile, gold has soared to record highs this year, supported by demand from central banks and safe-haven buying by retail traders amid geopolitical and trade risks. On the other hand, the Bloomberg US Dollar Index has fallen about 7% this year due to uncertainties related to US President Trump's policies, on track for its worst annual performance since 2017.

Yen Bullish Sentiment Rises

The Bank of Japan's unclear outlook on rate hikes throughout this year is one reason for the yen's poor performance; last month, Sanae Takaichi, who supports loose monetary policy, was elected prime minister, and her government is currently preparing a spending plan that exceeds expectations.

However, the bullish sentiment for the yen in 2026 may precisely stem from its undervaluation—which itself reflects investors' continued lack of enthusiasm for Japanese assets. The same group of investors surveyed by Bank of America are underweight Japanese equities by a net 4%, a view that has persisted for over a year.

"If the US Treasury releases its next macro and foreign exchange report in November and brings exchange rate policy back into focus, the rally in the US dollar against the yen may be impacted." said Bloomberg Intelligence strategists Audrey Childe-Freeman and Stephen Chiu.

Traders with a higher risk appetite may also be hoping for Japanese authorities to intervene in the foreign exchange market in the coming months to support the yen—such measures were taken last year when the US dollar against the yen broke through the closely watched 160 level.

"Speculators still clearly prefer to buy the US dollar against the yen, testing the tolerance of Japan's Ministry of Finance, whose verbal warnings are having less and less impact on the market," wrote Francesco Pesole, FX strategist at ING Bank NV in London, on Tuesday. "Any bottom line may be close to the 160 level, and we may see further upward pressure in the coming days."

As part of its monthly global fund manager survey, Bank of America surveyed 172 investors from November 7 to 13, whose total assets under management amounted to 475 billions USD.