Over the past 24 months, the Japanese Yen has been the most resilient among major currencies, and this wave of depreciation has not weakened even as we enter 2026. Last week, the USD/JPY broke through the 159 level, reaching a high not seen since July of last year.

Speaking of the Yen's rebound, there have been a few instances. During the July to August 2024 surge, the Yen appreciated to around 140 against the USD, mainly due to a sudden liquidation of Yen arbitrage trades, triggering panic short covering. Later, there was another decline to 140, driven by safe-haven buying and massive selling of USD assets.

By the first half of this year, the situation looked favorable for the Yen. Data from the Commodity Futures Trading Commission (CFTC) and the Chicago Mercantile Exchange (CME) showed that the Yen's net non-commercial positions shifted from net short to net long, even reaching a historic high in April. Investor sentiment also changed—bearish views on the Yen weakened, and bullish sentiments emerged. The logic behind this was clear: the Federal Reserve would cut rates significantly, the Bank of Japan would continue to raise rates, and the Japanese government could intervene in the currency market at any time.

The problem is, starting in the second half, the script reversed. The Fed's policies are not as dovish as the market expected. In September last year, expectations were for a cumulative rate cut of 2.5 percentage points by the end of 2025. But what happened? Due to the resilience of the US economy and persistent inflation, the Fed only cut rates by 1.75 percentage points. Looking ahead, the situation is even less favorable for the Yen...