Insights 
VT 
BoJ’s Historical Approach
Historically, the BoJ’s approach has been an ultra-loose monetary policy aiming to boost domestic demand. Meanwhile, the US Federal Reserve has maintained high interest rates to combat inflation. The differing approaches are under reevaluation as fiscal concerns and credit ratings challenge the US Dollar’s strength, and markets adjust expectations for potential Fed rate cuts this year.
The Japanese Yen reemerges as a safe-haven currency, benefiting from concerns about US fiscal discipline. Should Ueda suggest policy tightening, the Yen could strengthen by reducing rate disparities and bolstering confidence in the currency.
At present, renewed downward pressure on USD/JPY reflects not only last week’s movement in US Treasury yields but also a broader flight to safety in global markets. That drop below 143.00 serves as more than a technical signal—it marks a shift in sentiment, and, for now at least, a reversal of recent momentum. With risk aversion taking hold, shorter-term trades remain sensitive to developments around inflation and rate outlooks in both the US and Japan.
Federal Reserve Stance
Ueda’s upcoming speech has gained more attention than the conference branding might suggest. His remarks often refrain from making bold policy shifts, but any hints—particularly around the labour market or domestic consumption—will be dissected for signs that Japan might ease its yield curve control stance further. Yields on long-term Japanese bonds have been moving steadily, and a more determined tone from the Bank of Japan would pull capital back into the Yen, putting pressure on the pair from the Japanese side.
Meanwhile, the Federal Reserve’s stance is not settled. Although inflation has cooled off from its peaks, core readings remain stubborn in parts of the economy. Powell’s team has not provided firm guidance on rate reductions, and ongoing fiscal concerns add weight to safe-haven demand. That’s something we are now seeing in the bond markets—slight steepening at the long end as investors reassess public spending risks. That dynamic also brings indirect support to the Yen, especially if Japanese authorities step back from interventionist action.
We expect the spread between US and Japanese yields to stay compressed in the near term, especially if the Fed remains cautious on policy easing. This makes carry trades less attractive and opens the door to more unwinding of USD/JPY longs that were built in anticipation of sustained US economic outperformance.
