Yen Soars as Carry Trade Unwinds Amid Tokyo-Washington Shift
The Japanese yen has emerged as a top performer in the US Dollar Index (DXY) complex, with USD/JPY trading below its end-2025 level of 156.70.
As of this year's mid-point, the currency has seen a 1.5% year-to-date gain against the US dollar, and a major trendline breach has increased downside risk for the pair.
A joint US-Japan intervention in late July aimed to strengthen the official backstop against disorderly yen weakness, while an announcement by US Treasury Secretary Scott Bessent on August 18 doubled buybacks of long-dated US Treasuries and shifted fiscal deficit concerns from Tokyo to Washington.
The carry trade has weakened as a result of these developments, supporting demand for the currency as a haven. As such, derivative traders are advised to position themselves for further downside in the USD/JPY pair over the coming weeks.