USDJPY Reclaims $159 as Carry Trade Remains Intact Amid Wide Yield Gap
The USDJPY currency pair has reclaimed the $159 level in under two weeks after joint US-Japan intervention attempted to slam it from $164 to $155. The market's swift recovery indicates that attempts to manipulate the yen have failed, and the carry trade remains intact.
On August 2, Japan and the US executed their first coordinated yen-buying operation since 1998 through the EUR/JPY cross, backed by both Treasury Secretary Bessent and Japan's MoF. The move was meant to curb speculation but had little impact on the carry trade.
The BOJ raised its policy rate to 1.0% in June, the highest since 1995, but held steady in July. Despite this, Japan's borrowing costs remain a fraction of US rates, and the yield gap that fuels the carry trade hasn't closed. Three forces keep USDJPY bid: elevated US Treasury yields making the dollar attractive, Japan's widening trade deficit draining the yen, and rising JGB 10Y yields offset by narrowing US-Japan yield gaps.
Until the BOJ closes the yield gap decisively or US yields break lower, the carry trade has a floor under USDJPY. The technical setup shows that price is stabilizing around $158.80-$159.00 after the intervention-driven flush and holds above the rising long-term trendline near $157.20-$157.50.
The bullish thesis breaks if USDJPY loses the trendline at $157.20, opening the path toward $156.00 and potentially $155.00, the post-intervention low. The bigger risk is political, not technical, with Japanese authorities signaling willingness to intervene again near $160, backed by US support.