Watch out for USDJPY carry trade unwind:

Analysis by Muffett investments - 19/11/2025

The above chart illustrates the price action of USDJPY ( bottom) and comparing it with the yield difference between the 10 year yield of US government and Japanese government. Usually the USDJPY follows the yield difference higher and goes down when the yield difference falls. This has stimulated aUSDJPY carry trade which was started in Biden/Yellen era. We think that the policy makers deliberately let USDJPY rise as the carry trade associated with it was propping up the US stock market which is what Biden wanted. This policy has been continued by the Trump administration. However the Japanese policy makers have taken a different stance. They can see the bubble forming and they are allowing the bubble to slowly deflate hoping this will not cause significant falls in USDJPY. We think that this is the reason why the Japanese central bank has allowed their yields to go higher.

Now since may we are seeing a divergence between USDJPY and the spread between the US and Japanese government 10 year yields. As this yield difference falls, we should see falls in the USDJPY pair but this hasnt happened. Whenever we have divergence like this, it usually but not always due to manipulation. Let’s look at the USDJPY chart now.

The above is the weekly chart of USDJPY. As you know we have been long on USDJPY. As shown in the chart, the liquidity is very close and so it is very likely that price will go and seek that liquidity. at the top. Once that is taken, we should watch price action closely to look for weakness in this pair. If it happens, then we can look to take shorts and target the liquidity below.

DISCLAIMER; This blog is for educational purposes only and should not be construed as investment advice.