USDJPY momentum seems to be easing after testing the 158.50 resistance. The Takaichi trade has gone on a bit too long in our view, pushing the yen into intervention territory. It may be early to say it is finished, but fundamental signs are showing more and more yen-positive hints. 

(FED and BOJ Decision Pricing) 

Recent remarks from Bank of Japan (BOJ) governor Ueda increased the odds of a rate hike at the December meeting. Ueda said they will look at the pros and cons of a rate move and make an appropriate decision, adding that even with a hike, monetary policy would still remain on the accommodative side. Market pricing now shows rate hike odds at 80 percent. 

On the US side, despite many members speaking against a cut, recent data and comments from Waller and Williams pushed market expectations back in favor of a December cut, with odds at 91 percent. 

The BOJ and the Fed are moving in different directions, and although the rate gap is still very wide, it is slowly narrowing. 

(US – Japan 10 Year Bond Yield) 

The bond market reflects these diverging paths as well. US 10-year yields have fallen to 4 percent from 4.80 percent since the start of 2025, while Japanese yields have risen to 1.82 percent from 1.10 percent. At least on the Japan side, the yield rally is expected to continue with new fiscal measures and persistently high inflation. 

The spread between US and Japanese yields is narrowing, just like the gap between their central bank rates. Will this trigger a reverse carry trade in 2026? It is hard to say, but it is a real possibility and could be an additional positive factor for the Japanese yen. 

USDJPY 

For the moment, USDJPY’s upside potential is limited because the threat of intervention is so close, while the downward potential extends below 140. The diverging directions of the Federal Reserve and the Bank of Japan, along with the opposite moves in their yields, all support a downward move. 

The question is when and where the trend change will begin. With USDJPY, it is very difficult to predict how long extreme moves can continue, but the 158.50 resistance was one of the levels that could stop the advance, and yen bulls may have already started the move.