Yen Creeps Back Below 158: Is the Carry Trade Healing?
157.69.
USD/JPY closed below 158 on Tuesday for the first time in two weeks, and the move has the carry community asking an uncomfortable question: is the patient recovering, or is this the quiet before the next episode?
The case for healing
The September shock — the crash to 152.90 that wiped out months of carry gains — has done its work. Positioning is rebuilt but restrained, volatility has halved from its panic peak, and the pair has spent a week grinding lower in an orderly way rather than collapsing. Meanwhile, the fundamental engine never stopped: the rate gap between the US and Japan remains wide, and until the Bank of Japan’s meeting next week, nothing threatens it. An orderly drift toward 156–157 with carry accruing daily is precisely what a healthy carry trade looks like.
The case for caution
The BoJ meets in six days. The market is split on whether the bank nudges its policy guidance, and with positioning once again building on the long-dollar side, the asymmetry is familiar: slow drift down, violent snap if Tokyo surprises. Also note the dollar’s behavior elsewhere — the euro bouncing, gold rallying — suggests the broad dollar bid is softening even as USD/JPY holds up. When a currency weakens against everything except one funded pair, that pair is usually next.
Levels
157.58 (last week’s low) below opens 156.20, then the critical 155 zone. Above, 158.75 caps the recovery. The BoJ meeting is the whole trade: small positions until it’s over, and respect the 152.90 line that has defined this market’s risk all quarter.
Disclaimer: This is market commentary, not investment advice. Trading FX, commodities, equities and crypto carries substantial risk of loss.
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