The Japanese Yen benefited from the ‘sell America’ trend observed in April. The failure of US Treasuries to serve as a ‘safe asset’ contributed to this, with possible recurrences expected if unfunded tax cuts proceed.

A possible 25 basis point rate hike from the Bank of Japan in the third quarter might align with the Federal Reserve’s easing cycle. This scenario would point USD/JPY towards the 140 level, although any retest of the 150 level is not expected to be prolonged.

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The article outlines an important shift that took hold in April, highlighting how the Japanese Yen gained traction on the back of traders stepping away from US assets. An apparent loss of confidence in US Treasuries—long considered among the safest global investments—played a meaningful role in this reversal. The fear is not unfounded; if policy decisions in Washington lead to unfunded tax reductions, we could see another wave of defensive positioning, much like what we saw last month. This isn’t a one-off but part of a deepening reassessment about where risk really lies.

Kuroda’s successor appears to be navigating a delicate balance—avoiding sudden shocks yet preparing for moderate tightening. A modest hike of 25 basis points later this year by the Bank of Japan is beginning to look increasingly possible, particularly if the US Federal Reserve initiates a gradual shift towards policy easing. In practical terms, that combination could allow the Yen some breathing room. We see scope for USD/JPY touching the 140 level in the months ahead, assuming external shocks remain limited and inflation data stays steady across both regions. It won’t be a straight line, naturally. If pricing pressures ease in the US more quickly than expected, the Fed might act faster than is currently priced, unsettling the rate differentials and bringing opportunities just as much as confusion.

Market Volatility and Opportunities

That said, any climb back toward 150 feels unlikely to last beyond a short-term bounce. Short bets on the Yen have already been trimmed back, and recent moves suggest a market that’s beginning to price more nuance into its expectations, not simply reacting to headline yield gaps.

From our standpoint, the following weeks demand far more attention to implied volatility and forward rate agreements rather than spot levels. It’s not just the rate decisions that matter, but how they are framed—how markets interpret the tone alongside the actual figures. Volatility could be underpriced if traders begin to question the extent of the Fed’s policy pivot or the BoJ’s restraint. Lots of attention will turn to speeches by policy makers and the yield curve structure, rather than just the calendar of meetings.

This isn’t advice—everyone needs to conduct proper due diligence—but it’s clear that the usual assumptions about safety and positioning are being stress-tested in real time. For us, it’s less about reacting to each move and more about adjusting models to reflect this drift in global fixed income credibility. Spreads, hedging costs, and even central bank balance sheets are all increasingly key to evaluating macro exposure.

In short, there’s directionality, yes—but duration, leverage ratios and rollover costs need to be evaluated continuously to keep position sizing in proportion to the shifting environment. That’s especially true in derivative strategies where convexity can change in sharp bursts. We’re watching two things most closely: how long the Fed remains cautious, and how assertively Tokyo acts once it senses leeway. Markets are not in limbo; they’re testing thresholds. Those managing exposure through options, swaps, or volatility plays will need to map movement against policy clarity, not just pricing noise.

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