The USDJPY rally has paused at the 200-period moving average amid today’s broader dollar stagnation. Yen pressure has also eased due to a pullback in Japanese government bond yields, which had been rising for some time on investor concerns surrounding the upcoming parliamentary elections.
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Yields on 10-year Japanese bonds have climbed by approximately 45 basis points since April, driven by uncertainty over Japan–U.S. trade relations and concerns about the country’s fiscal stability. Support for incumbent Prime Minister Ishiba has been declining, while all major parties contesting the election are under pressure to pursue fiscal expansion in response to rising food prices. These spending expectations have weighed on investor confidence in the Japanese economy, pressuring the yen and pushing yields higher.
Source: XTB Research
However, today’s session points to a pause in the bond sell-off. Yields on 30- and 40-year JGBs have fallen by about 10 basis points, while 10-year yields have returned to the 1.57–1.58% range.
That said, the yen’s resilience may prove short-lived. Election uncertainty and the potential complications of a minority government remain key risks for the currency—especially amid growing stagflation fears. The options market also reflects this sentiment, with risk reversals turning positive for the first time since September 2024, signaling stronger demand for upside protection in USDJPY.
Source: Vassilis Karamanis for Bloomberg
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