USDJPY——When Will the Golden Age of Carry Trade End

In 2026, when global interest rate environments are highly divergent, USDJPY has long surpassed the scope of an ordinary currency pair, becoming the most important indicator for global carry trade. As long as the Bank of Japan's interest rates remain far below the Federal Reserve's, the trading logic of borrowing yen to buy dollar assets remains difficult to shake, but has the countdown to this feast quietly begun?
The core market disagreement is not whether the interest rate differential exists, but how long it can be maintained. Bank of Japan Governor Ueda Kazuo's remarks at the last press conference were overlooked by many traders: he stated that if the yen's persistent weakness has an undeniable negative impact on domestic inflation and consumption, the central bank will not rule out taking action in advance. The implicit meaning of this statement is that the yen exchange rate itself is becoming a constraint variable for monetary policy.
In the past, we were used to explaining exchange rates through interest rate differentials, but now the causal chain may reverse—exchange rates influence interest rate decisions. Once this mechanism is fully digested by the market, the pricing logic of USDJPY will be thoroughly rewritten. In Japan's current inflation structure, imported inflation still accounts for a high proportion, with energy and food import prices directly affected by exchange rates. If USDJPY accelerates again and breaks through 155 or even 160, the political pressure on the Bank of Japan will increase sharply, and the possibility of early rate hikes or significant reduction in bond purchases will shift from tail risks to one of the baseline scenarios.
From a capital flow perspective, according to the latest CFTC positioning data, yen short positions are approaching their highest levels in nearly five years. Extremely crowded positions often indicate trend fragility; once a reverse catalyst triggers a short squeeze, a USDJPY plunge caused by forced liquidations could wipe out months of gains within days. Historically, there have been multiple cases where the yen appreciated more than 10% within a few weeks, and such tail risks should not be ignored given the current crowdedness.
Additionally, domestic Japanese institutional investors are quietly adjusting their strategies. As Japanese government bond yields gradually rise, life insurance and pension funds are beginning to allocate more funds into domestic bonds, with marginal increases in overseas investments slowing down. From a long-term capital flow perspective, this weakens the selling pressure on the yen.
In the short-term trend, USDJPY remains supported by an upward trendline, and the bullish pattern has not been broken. However, as it approaches the 152-155 range, the battle between bulls and bears will intensify significantly. For traders, the risk-reward ratio of blindly chasing long positions is deteriorating; it is more appropriate to take small long positions on dips to key support levels, while closely monitoring signals from the Bank of Japan and the Ministry of Finance. Once verbal interventions escalate to actual interventions, it is advisable to exit promptly or even reverse to short positions.