USD/JPY Weekly Forecast: Fragile Footing as Carry Unwind Risks Grow
Author: David Scutt, Market Analyst
Date: February 14, 2026
Key Points
- USD/JPY is experiencing instability due to strengthening yen flows and fragile risk sentiment.
- Market focus is shifting towards Japan's bond market and risk appetite rather than traditional macroeconomic indicators.
- Recent correlations indicate a strong relationship between USD/JPY and Japan's 2s30s curve.
- Risks of a disorderly unwind of carry positions are increasing, particularly with rising short-term borrowing costs in Japan.
- Price action around the 152 level is critical, with potential for forced carry trade unwinds if this support is breached.
Market Overview
The USD/JPY currency pair is starting the week on shaky ground as the yen strengthens and concerns about carry trade vulnerabilities resurface. With a busy economic calendar ahead, the market may react more to shifts in risk sentiment and developments in Japan's bond market than to traditional economic data.
Correlation with Japan's Bond Market
Recent analysis shows that USD/JPY has become increasingly correlated with the shape of Japan's 2s30s curve, indicating that fiscal policy announcements from the Japanese government could significantly impact the currency pair. A fresh auction of 20-year Japanese Government Bonds (JGBs) is an event to watch closely.
Carry Trade Risks
There is a growing risk of a disorderly unwind of carry positions in USD/JPY, driven by rising short-term borrowing costs and a strengthening yen. The recent weakness in previously strong market sectors, such as technology stocks and cryptocurrencies, adds to this vulnerability. A notable correlation with Nasdaq futures and VIX futures suggests that any sustained decline in asset prices could trigger a significant market reaction.
Economic Calendar and Potential Catalysts
While the upcoming Core PCE deflator is important, its impact may be limited unless there is a significant deviation from expectations. The market will also be watching for comments from Federal Reserve officials and other economic indicators, including jobless claims and FOMC minutes, which could provide trading opportunities.
Technical Analysis
The technical outlook for USD/JPY shows a bearish key reversal pattern, indicating increased selling pressure. The price action around the 152 level is crucial, as a break below this support could lead to further downside and increased risks of carry trade unwinds. Conversely, a move above the 50-day moving average could signal a shift in market sentiment.
Conclusion
As the week progresses, traders should remain vigilant regarding the developments in Japan's bond market and the overall risk sentiment, as these factors will likely dictate the direction of USD/JPY. The 152 level will be a key battleground to watch for potential market movements.