Outrageous Predictions
Carry trade unwind brings USD/JPY to 100 and Japan’s next asset bubble
Charu Chanana
Chief Investment Strategist
The yen remains close to a 40-year low even after Japan’s core CPI accelerated to 1.6% in June. The inflation pickup strengthens the case for another BOJ hike, particularly as yen weakness raises imported costs. But today’s market impulse is running the other way: higher oil prices worsen Japan’s import bill, while rising US yields keep the dollar attractive and preserve the wide US–Japan rate gap.
For the yen to reverse sustainably, firmer CPI must translate into a more hawkish BOJ path—or US yields and oil need to fall. Otherwise, intervention may deliver a sharp correction without changing the broader trend.

If US yields and oil remain elevated and USD/JPY holds above 163.20, the pair can retest 164.00, followed by 165.00–165.50. Traders can retain small long exposure or use call spreads, but the risk-reward deteriorates as the pair approaches 165.
A rapid move through 164–165 would raise the probability of official action. Intervention could drive a fast reversal towards 162.50, followed by the 161.00 50-day moving average. Long positions should therefore be smaller, tightly managed or partially hedged.
A credible agreement that drives oil sharply lower would remove one of the yen’s biggest near-term headwinds. Japan’s import bill would improve, while easing global inflation fears could also pull US yields lower and narrow the US–Japan rate gap.
A break below 161.00 would then expose 159.90, followed by 157.70, favouring selling USD/JPY rallies rather than buying dips.
The risk is that cheaper oil also lowers Japan’s inflation outlook and reduces pressure on the BOJ to hike. For a sustained yen recovery, oil and US yields likely need to fall together.