empty
29.05.2025 12:30 AM
The Yen Saws Off the Branch Under the Dollar

When you begin dismantling a system, you risk cutting off the branch you are sitting on. For decades, the United States' main trading partners earned money by exporting goods to the U.S. and reinvested it into American assets. Japan's current account surplus transformed the country into the world's largest creditor and the biggest holder of U.S. Treasuries. By eliminating trade imbalances with the Land of the Rising Sun, Donald Trump is effectively stripping America of one of its key buyers of assets. Is it any wonder that USD/JPY is falling?

Investment Flow Dynamics in U.S. Securities from Japan and Other Countries

This image is no longer relevant

The 9% strengthening of the yen against the U.S. dollar in 2025 is rooted in capital repatriation by Japanese residents. This trend is amplified by the normalization of monetary policy, the Bank of Japan's reduced bond purchases, and a shortage of domestic investment options. As a result, yields on Japanese debt have surged. Long-term bonds, such as 30- and 40-year issues, have hit record highs, and the narrowing yield spread with U.S. equivalents provides a solid foundation for the downtrend in USD/JPY.

However, the rally in Japanese bond yields is causing serious concern in Tokyo. The cost of servicing the country's massive public debt—more than twice its GDP—is ballooning. A budget gap is opening that must be filled. In response, the government hinted at adjusting future bond issuance in favor of short-term securities. This move pulled back the yields on 30- and 40-year bonds and allowed USD/JPY bulls to mount a counterattack.

Japanese Bond Yield Dynamics

This image is no longer relevant

I don't believe the bulls will be celebrating for long. The systemic overhaul of international trade initiated by Donald Trump will come at a steep cost for the U.S. Deprived of its largest buyers, America will struggle to stimulate its economy at its usual pace. The economy cannot handle another massive fiscal stimulus package under the 47th president. It's no surprise that Moody's stripped the U.S. of its top-tier credit rating.

This image is no longer relevant

The correction in USD/JPY within the broader downtrend is not only due to stabilization in Japan's bond market. The White House's decision to delay the introduction of 50% tariffs on European imports has boosted global risk appetite. As a result, the yen has come under pressure as a safe-haven currency. However, these developments are temporary. As long as Donald Trump's policies create uncertainty, the demand for safe havens will remain high.

Technically, on the daily chart of USD/JPY, a doji bar is formed. Its lower boundary is located near the fair value of 143.75. A break of this support will be the basis for forming or building up shorts.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

GBP/USD Overview – June 5: Britain Is America's Best Friend, but Still Has to Pay

The GBP/USD currency pair traded rather calmly on Wednesday, as there were few important events and reports during the day. As we expected, the business activity indices (excluding ISM)

Paolo Greco 03:52 2025-06-05 UTC+2

EUR/USD Overview – June 5: Trump Will Continue Pressuring the EU

The EUR/USD currency pair traded very calmly on Wednesday. As we mentioned yesterday, there was no reason to expect the business activity indices to influence trading — especially the European

Paolo Greco 03:52 2025-06-05 UTC+2

Trump Once Again Fails to Persuade Powell

Donald Trump and Jerome Powell held a meeting at the White House last week. This news went largely unnoticed due to the scant details provided. Only general information about

Chin Zhao 00:38 2025-06-05 UTC+2

EUR/USD. June ECB Meeting: Preview

On Thursday, the European Central Bank will announce the results of its next meeting. Although the formal outcomes of the June meeting are virtually predetermined, the future prospects for further

Irina Manzenko 00:38 2025-06-05 UTC+2

The Dollar Returns to the Battlefield

When there is no unity among allies, things don't go smoothly. Following mutual accusations between the U.S. and China, Donald Trump commented that Xi Jinping is a very tough

Marek Petkovich 00:38 2025-06-05 UTC+2

Is This the Right Time for Christine Lagarde to Leave Her Post?

While the euro shows no intention of yielding to the U.S. dollar, Christine Lagarde is about to face criticism over her intention to continue leading the European Central Bank

Jakub Novak 13:35 2025-06-04 UTC+2

USD/CAD. Analysis and Forecast

The USD/CAD pair remains in a sideways consolidation near its lowest levels since October 2024. Market participants are awaiting the Bank of Canada's interest rate decision, which will be announced

Irina Yanina 09:57 2025-06-04 UTC+2

The Stock Market Believes Trump's Tariff Game Won't Have a Major Impact (Growth in #NDX and #SPX CFDs May Continue)

After a sharp, almost catastrophic drop in March and April, the major U.S. stock indices recovered in May, fully offsetting the decline. Confidence is growing among market participants that this

Pati Gani 09:53 2025-06-04 UTC+2

The Market Is Playing a Dangerous Game

Is the market only hearing what it wants to hear? Or is it simply playing the "buy the dip" game? According to Nomura, buying the S&P 500 five days after

Marek Petkovich 09:27 2025-06-04 UTC+2

What to Pay Attention to on June 4? A Breakdown of Fundamental Events for Beginners

There are not many macroeconomic reports scheduled for Wednesday. Of course, we should note the services sector business activity indices for Germany, the UK, the EU, and the US. However

Paolo Greco 07:27 2025-06-04 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.