USD/JPY bulls retain the upper hand so long as the Bank of Japan is seen as falling further behind the curve as debt loads are growing.

Markets are increasingly recognizing that central banks, broadly, may be too accommodative given persistent inflation pressures, elevated energy prices, fiscal stimulus measures, and record-high equity markets.

This backdrop is steepening yield curves globally, pushing long-end yields toward multi-decade highs.

Rising back-end yields alongside high inflation create particular concern for yen bulls, as they intensify scrutiny over the sustainability of Japanese government finances.

That pressure is compounded by the prospect of increased foreign corporate issuance such as Alphabet tapping the yen bond market and likely converting proceeds into dollars.

While intermittent FX intervention has helped slow the yen’s depreciation, officials have recently remained quiet, allowing USD/JPY to grind higher within the daily cloud of 156.37-158.91 as markets absorb previous dollar sales.

But the broader structural backdrop, including Japan’s commodity import dependence and debt financing of defense and AI investment, remains yen-negative.

With sizeable option expiries near 159 set to roll off, spot could resume its climb toward and potentially beyond 160, a risk increasingly reflected in options pricing if congestion above 159 fails to cap .

A more decisive shift in BOJ policy is needed to alter bearish yen sentiment, and an earlier-than-expected rate hike cannot be ruled out.
Yen


(Robert Fullem is a Reuters market analyst. The views expressed are his own.)