I just saw a very interesting set of data, and the wave of selling in the global bond markets in mid-May was indeed quite intense. Behind the movement of the US dollar and Japanese yen, there actually reflects a deeper issue—rising global inflation expectations.

At that time, US Treasury yields directly broke through 4.5%, and Japan’s 10-year government bond yield even jumped to 2.79%, hitting a nearly 29-year high. The main reason behind this was the continued unexpected rise in oil prices, and the market began betting that the Federal Reserve might raise interest rates before the end of the year. But for Japan, the problem is more serious—they rely on Middle Eastern crude oil for over 90% of their imports, so if shipping through the Strait of Hormuz is blocked, imported inflation pressures will spike sharply.

Interestingly, the Japanese government is also considering drafting a supplementary budget to cope with the commodity price shocks caused by the Middle East conflict. Once this signal was out, market concerns about Japan’s fiscal deficit increased, which in turn pushed up Japanese bond yields. I think there’s a key risk that many people are overlooking—the gap between Japanese and U.S. bond yields is narrowing, and large Japanese investors with substantial funds might start repatriating their long-term overseas investments. Japan is the largest holder of U.S. debt, and if the yen carry trade reverses on a large scale, U.S. Treasuries could face a new round of selling.

From a technical perspective, the USD/JPY had already rebounded to the 159.0 level, rising for five trading days. Based on the trend, it could continue to challenge the psychological barrier of 160 in the short term. But medium-term risks should also be watched—if it cannot effectively break through 160, the possibility of a reversal downward increases.

Fundamentally, the Bank of Japan’s policy choices are crucial. The government wants to maintain an accommodative policy, but if the central bank delays interest rate hikes, the yen’s weakness will further amplify inflation effects. The market generally expects the Bank of Japan to take action in June, but whether this timetable can keep up with the evolving situation depends on the subsequent developments in Middle Eastern affairs and commodity prices. Overall, this market movement requires close attention to the statements from the Federal Reserve and the Bank of Japan, as well as the stability of the Japanese bond market—these are key factors influencing the future direction of USD/JPY.