Looking to the Futures
Japanese Yen pushes higher as rates rise
Yesterday we saw Japan’s Prime Minister Shigeru Ishiba give a stark warning surrounding their financial condition as a country. Just a few days after the economy reportedly shrunk for the first time in a year, Ishiba went on to say he believes it’s a bad idea to fund tax cuts with governmental bonds while his opposing parties have continued to ramp up the pressure in favor of. Data for the March quarter showed Real GDP (contracted .7% from January to March) is falling faster than expected with flat consumption and weak exports. As U.S. tariff possibilities cloud the outlook for policymakers they will continue to monitor the automobile sector, which is a staple for the export-heavy economy.
PM Ishiba was quoted saying to parliament, “Our country’s fiscal situation is undoubtedly extremely poor, worse than Greece’s.” For reference according to figures published by the International Monetary Fund, Japan’s general government debt as a percentage of gross domestic product stood at 234.9 percent as of 2025 while it was 142.2 percent for Greece, who defaulted on a 1.6 billion payment to the IMF back in 2015.
The minister of finance Katsunobu Kato has emphasized the country must maintain market trust in its finances and that the country of Japan has not had difficulty raising funds through debt issuance now or at any point in the past. Kato further went on to state on Tuesday he expects any bilateral meetings with U.S. Treasury Secretary Scott Bessent on exchange rates to be based on their shared view that excessive currency volatility is undesirable.
Japan’s 10-year Treasury yield reached 1.52% yesterday, which is a 16 year high. Prior to 2020, there was a period where the bond yield was negative. This rally falls in line with the Bank of Japan (BOJ) and their path towards raising rates. Earlier in the month on May 2nd, BOJ Governor Kazuo Ueda chose to pause their hike schedule and keep rates unchanged at a 0.5 percent target, citing tariff uncertainty and waiting for inflation to converge towards the 2 percent central bank’s target.
As rates rise, the yen carry trade becomes less desirable due to the spread between yields narrowing. The yen carry trade can be defined as borrowing yen or a currency with low interest rates then using it to buy a currency with a higher rate such as U.S. dollars resulting in a return that is calculated off the difference between the spreads of the yields. One such risk to this type of trade would be the Japanese Yen (/6J) strengthening against the currency with the higher yield (in our case the dollar index $DXY).
Japan currently holds 1.125 trillion (up 4%) in U.S. treasury securities as of February 2025, which is the largest foreign investment holding of any country (China comes in second with 784.3 billion).
Technicals
The Japanese Yen (/6J) contract has been trending upwards since its year low on January 10th at .006333. Since that time it has crossed above all three Simple Moving Averages on a daily chart (50-day, 100-day, 200-day) which represents positive bullish momentum. In that same time period we have seen the U.S. Dollar Index ($DXY) top out reaching its high of 110.176 on January 13th and trended downwards towards its current price range of 100.461. We have seen decreasing daily volume in the month of May presumable since the BOJ released their rate decision on May 2th. The Relative Strength Index (RSI) over a 14-day period sits neutral at 51.0617. It is important to remember that this product is largely reactive to macroeconomic events, the corresponding data releases, and how that relates to central bank policy decision.
According to the CFTC Commitment of Trader’s Report published May 13th, leveraged funds remain long 55,015 contracts with minimal increase while asset managers/institutional also remain long 124,096 contracts showing a decrease of 10,060 contracts week over week. Dealers/intermediaries are overwhelmingly net short 257,899 contracts but have reduced that position size by 19,779 since the prior week.
Economic Calendar
Tuesday May 20th
9:00 am ET- Richmond Fed President Tom Barkin speech
9:30 am ET- Boston Fed President Susan Collins participates in Fed Listens event
1:00 pm ET- St. Louis Fed President Alberto Musalen speech
5:00 pm ET- Federal Reserve Governor Adriana Kugler speech
6:50 pm ET- Japan Balance of Trade
6:50 pm ET- Japan Exports Year over Year
6:50 pm ET- Japan Imports Year over Year
