The yen is strengthening.
2026-09-10 18:44:07
The US dollar has fallen in five of the past six trading days. Market concerns about the limited intervention of the US Treasury in the debt market, coupled with the European Central Bank's preparations for aggressive monetary tightening and continued capital flows from the US to Japan, have collectively weighed on the dollar, while the yen has also benefited from this capital flow trend. Even other disruptive factors in the international macroeconomic market have failed to reverse the dollar's weakness. Brent crude oil prices reaching the $100 per barrel mark, the S&P 500 index experiencing a pullback, and rising US Treasury yields—conditions that theoretically should provide support for the dollar—have all failed to provide effective support at this stage, and the dollar index remains weak. 
The US Treasury plans to repurchase $6 billion in long-term bonds, conducting six rounds of such repurchase operations before early November, followed by an announcement of its action plan for the next three months. Given the massive and complex nature of the US Treasury market, the $6 billion repurchase program appears quite limited. Investors had anticipated more aggressive intervention from the Treasury, but the final plan fell short of market expectations, leading to disappointment. US Treasury yields subsequently rose, and the dollar briefly found respite with a slight rebound. However, this was short-lived. Hawkish policy comments from the European Central Bank led to a repricing of ECB rate hike expectations, and the dollar quickly faced renewed selling pressure. From a medium- to long-term perspective, capital inflows back to Japan may be the more fundamental driving force behind the continued weakening of the dollar, and this factor's impact will be far more lasting than short-term fluctuations caused by central bank statements. The decline in the dollar against the yen is not solely due to direct intervention in the foreign exchange market, nor is it simply a market bet on a significant tightening of monetary policy by the Bank of Japan. If Japanese domestic bond yields continue to rise, the attractiveness of Japanese assets will increase, allowing Tokyo to retain more domestic capital that was previously flowing overseas and reduce the scale of capital outflow. Furthermore, Japanese long-term bond yields have climbed to their highest level since the 1990s. This significant increase in yields will alter the yield differential between domestic and foreign assets, potentially triggering a large-scale capital repatriation wave. This capital flow will profoundly change the pricing logic of the yen. Japan is the world's largest holder of US Treasury bonds, holding $1.1 trillion; Japanese residents also hold another $5 trillion in overseas assets. If this total of trillions of dollars in assets begins to withdraw from the US and Europe and flow back to the Asian domestic market, it will form a considerable capital influx. Consequently, the USD/JPY and EUR/JPY exchange rates will inevitably depreciate. The Government Pension Investment Fund of Japan (GPIF) and other pension funds, as Japan's largest institutional investors, are likely to be at the forefront of this capital repatriation wave, adjusting their overseas asset allocation ratios and increasing their holdings of Japanese domestic assets. Furthermore, Norway is also prepared to invest billions of dollars in various Japanese assets, and the influx of new overseas funds will further boost the yen's strength. With the support of multiple forces, the yen is expected to break away from its long-standing pricing model, which has been heavily reliant on the US-Japan interest rate differential. It will no longer simply follow the fluctuations in the interest rate differential between the two countries, but instead begin to correct the long-standing fundamental imbalances between Japan and the US. Meanwhile, indicators related to relative price levels, current account performance, the direction of fiscal policies in both countries, and inflation prospects all currently lean towards a bearish outlook for the USD/JPY, providing multiple logical supports for its downward trend. However, judging solely from the perspective of bond yield spreads, the yen remains the most undervalued currency among the G10 developed economies, and its valuation recovery will not be achieved overnight. To reverse this valuation mismatch and correct the yen's undervaluation, the Bank of Japan needs to implement a strong monetary tightening policy, raising domestic interest rates by adjusting monetary policy to narrow the interest rate gap with major overseas economies, thus further solidifying the foundation for the yen's appreciation. The information provided is for reference only and does not constitute investment advice. The foreign exchange market carries a high degree of volatility and risk.
The US Treasury plans to repurchase $6 billion in long-term bonds, conducting six rounds of such repurchase operations before early November, followed by an announcement of its action plan for the next three months. Given the massive and complex nature of the US Treasury market, the $6 billion repurchase program appears quite limited. Investors had anticipated more aggressive intervention from the Treasury, but the final plan fell short of market expectations, leading to disappointment. US Treasury yields subsequently rose, and the dollar briefly found respite with a slight rebound. However, this was short-lived. Hawkish policy comments from the European Central Bank led to a repricing of ECB rate hike expectations, and the dollar quickly faced renewed selling pressure. From a medium- to long-term perspective, capital inflows back to Japan may be the more fundamental driving force behind the continued weakening of the dollar, and this factor's impact will be far more lasting than short-term fluctuations caused by central bank statements. The decline in the dollar against the yen is not solely due to direct intervention in the foreign exchange market, nor is it simply a market bet on a significant tightening of monetary policy by the Bank of Japan. If Japanese domestic bond yields continue to rise, the attractiveness of Japanese assets will increase, allowing Tokyo to retain more domestic capital that was previously flowing overseas and reduce the scale of capital outflow. Furthermore, Japanese long-term bond yields have climbed to their highest level since the 1990s. This significant increase in yields will alter the yield differential between domestic and foreign assets, potentially triggering a large-scale capital repatriation wave. This capital flow will profoundly change the pricing logic of the yen. Japan is the world's largest holder of US Treasury bonds, holding $1.1 trillion; Japanese residents also hold another $5 trillion in overseas assets. If this total of trillions of dollars in assets begins to withdraw from the US and Europe and flow back to the Asian domestic market, it will form a considerable capital influx. Consequently, the USD/JPY and EUR/JPY exchange rates will inevitably depreciate. The Government Pension Investment Fund of Japan (GPIF) and other pension funds, as Japan's largest institutional investors, are likely to be at the forefront of this capital repatriation wave, adjusting their overseas asset allocation ratios and increasing their holdings of Japanese domestic assets. Furthermore, Norway is also prepared to invest billions of dollars in various Japanese assets, and the influx of new overseas funds will further boost the yen's strength. With the support of multiple forces, the yen is expected to break away from its long-standing pricing model, which has been heavily reliant on the US-Japan interest rate differential. It will no longer simply follow the fluctuations in the interest rate differential between the two countries, but instead begin to correct the long-standing fundamental imbalances between Japan and the US. Meanwhile, indicators related to relative price levels, current account performance, the direction of fiscal policies in both countries, and inflation prospects all currently lean towards a bearish outlook for the USD/JPY, providing multiple logical supports for its downward trend. However, judging solely from the perspective of bond yield spreads, the yen remains the most undervalued currency among the G10 developed economies, and its valuation recovery will not be achieved overnight. To reverse this valuation mismatch and correct the yen's undervaluation, the Bank of Japan needs to implement a strong monetary tightening policy, raising domestic interest rates by adjusting monetary policy to narrow the interest rate gap with major overseas economies, thus further solidifying the foundation for the yen's appreciation. The information provided is for reference only and does not constitute investment advice. The foreign exchange market carries a high degree of volatility and risk.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
