USDJPY—When Will the Golden Age of Carry Trade End

In 2026, when the global interest-rate environment is highly divergent, USDJPY has already moved beyond the category of ordinary currency pairs and become the most central barometer for global carry trades. As long as the Bank of Japan’s interest rates remain far lower than the Federal Reserve’s, the trading logic of borrowing yen to buy dollar assets is hard to shake—but has the countdown to the end of this feast quietly begun?

The market’s core dispute is not whether the interest-rate spread exists, but how long the spread can remain. Many traders ignored a remark by Bank of Japan Governor Kazuo Ueda at the last press conference: he said that if the continued weakness of the yen has an undeniable negative impact on domestic inflation and consumption, the central bank will not rule out taking action ahead of time. The implied message is that the yen exchange rate itself is becoming a constraint variable for monetary policy. In the past, we used the interest-rate spread to explain exchange rates, but now the causal chain may reverse—exchange rates can end up influencing interest-rate decision-making. Once this mechanism is fully absorbed by the market, USDJPY’s pricing logic will be rewritten entirely. In Japan’s current inflation structure, imported inflation still accounts for a relatively high share, and the prices of energy and food imports are directly affected by the exchange rate. If USDJPY accelerates upward again and breaks above 155—even 160—the political pressure facing the Bank of Japan will rise sharply, and the likelihood of an earlier rate hike or a substantial reduction in the scale of bond purchases will shift from a tail risk to one of the baseline scenarios.

From the perspective of fund flows, according to the latest CFTC positioning data, yen short positions have once again moved close to their highest levels in nearly five years. Extremely crowded positions often signal trend fragility; once a reverse catalyst is triggered, a stampede-style liquidation that drives a sharp USDJPY plunge could wipe out months of gains within days. Historically, there have been multiple cases in which the yen appreciated by more than 10% in just a few weeks—this tail risk should not be overlooked given the current level of overcrowding. In addition, Japanese domestic institutional investors are also quietly adjusting their strategies. As Japan’s government bond yields gradually rise, life insurance companies and pension funds are beginning to allocate more funds into domestic bonds, while marginal incremental investment from overseas slows down; from a long-term perspective on capital flows, this weakens the yen’s selling pressure.

In the short term, USDJPY is still supported by the upward trend line, and the bullish structure remains intact. But as it approaches the 152-155 range, the battle between bulls and bears will intensify significantly. For traders, the risk-reward of continuing to chase longs blindly is getting worse. It is more suitable to take light, short-term long positions on pullbacks to key support levels, while closely monitoring signals from the Bank of Japan and the Ministry of Finance. If verbal intervention escalates into actual intervention, you should exit promptly—or even reverse and go short.

#TradFi交易分享挑战 $USDJPY ‌