USDJPY Bounces Back Above 159 as Carry Trade Persists

The US dollar against the Japanese yen, USDJPY, has bounced back above 159 in just two weeks after a joint intervention by Japan and the US. The pair plummeted from 164 to 155 following their coordinated operation on August 2, but has since recovered.

This rapid rebound suggests that the carry trade is still intact, despite the intervention efforts. The BOJ raised its policy rate in June, but held steady in July, leaving Japan's borrowing costs significantly lower than US rates.

Three factors continue to support USDJPY: elevated US Treasury yields making the dollar attractive, Japan's widening trade deficit draining the yen, and rising JGB 10Y yields offset by higher US yields. The yield gap that fuels the carry trade remains open.