Friday’s soft NFP print has shaken the confidence in the “higher-for-longer” U.S. rate path. With a 28bp drop in 2-year Treasury yields, we’ve likely seen the peak in short-term USD yield momentum, at least temporarily. Markets are recalibrating, and the dollar is vulnerable to further soft data, especially from upcoming ISM and inflation releases.

Meanwhile, the yen is benefiting from a twofold tailwind:

Positioning unwind as short-JPY trades are being cleared

Domestic bond instability following a weak 10-year JGB auction, which may force the BoJ to act defensively

Although the BoJ remains dovish in tone, market forces may override the central bank’s caution,  particularly if bond market volatility intensifies. Any further risk-off sentiment or dovish shift in U.S. data could extend USDJPY’s downside.

This trade offers a tactical opportunity to fade overextended rallies into key resistance, while aligning with both U.S. and Japanese macro narratives.

SHORT USDJPY

2025年8月6日