Post #15574

Rising Japanese Yields Shift the Risk Profile for USD/JPY Japan’s 10-year yield pushing above 2% reinforces the idea that the BoJ is still on a gradual tightening path. December meeting discussions showed policymakers debating further hikes. While inflation has cooled — Tokyo CPI eased back to ~2% — officials are focused on anchoring expectations and avoiding renewed yen weakness. Also, massive fiscal spending plans for 2026 are adding upward pressure to long-end yields, tightening financial conditions whether the BoJ wants it or not. USD/JPY implications: Higher JGB yields narrow rate differentials, which should be structurally supportive for JPY over time. However, as long as hikes remain slow and cautious, USD/JPY can stay elevated and volatile. The risk is asymmetrical: - Sharp USD/JPY spikes raise the probability of verbal or direct intervention, especially if driven by yield-driven moves rather than fundamentals. - Gradual JPY strength via yields is healthier and reduces intervention risk. - Alan