USD/JPY Analysis: Has the Yen Carry Trade Finally Peaked?

Key Points

• The outlook for USD/JPY appears bearish over the next 6–12 months, with topside resistance and structural flows indicating a downward trend.
• Intervention risk is noted around the 161–162 range, with Japan's Ministry of Finance previously indicating a line near 160.2 in 2024.
• Potential downside targets include 158 and 155, with 2024 lows possibly reaching 142 if a significant unwind occurs.
• In the near term, the carry trade remains intact, as the recent interest rate hike in June was anticipated and did not trigger panic in the markets.
• The structural shift in the market is expected to unfold over the next two to four quarters.
• As of June 21, the Strait of Hormuz has effectively closed, leading to a significant drop in commercial traffic. A prolonged closure, coupled with rising oil prices, could push USD/JPY beyond 162 and towards 165.

Market Dynamics

Japan has recently raised interest rates to their highest level since 1995, yet the yen has strengthened, resulting in USD/JPY trading at its highest level since 2024. This reaction—or lack thereof—indicates a potential peak in the USD/JPY pair. The article emphasizes that two opposing market dynamics are at play, and the data regarding Treasury holdings may provide critical insights into future trends, although it currently lacks a confirmed direction.