USD/JPY was near 160 as the Japanese yen kept weakening, while Japanese Government Bond (JGB) yields rose to multi-decade highs. The Bank of Japan (BoJ) kept a hiking bias as markets focused on higher rates.
The 10-year JGB yield rose 2.5bp to 2.41%, a 28-year high. The 40-year yield rose 7bp to 3.92%.
Japan’s leadership sought summit talks with Iran to help secure energy supplies. BoJ regional reports warned that Middle East tensions could raise transport and energy costs and disrupt supply chains.
The BoJ said the conflict could hurt the economy, while its hiking stance added to bond selling. Japan’s Minister for Economic and Fiscal Policy, Minoru Kiuchi, told parliament the weak yen can have both positive and negative effects on Japan’s economy.
The article was produced using an AI tool and reviewed by an editor.
The yen is extremely weak near 160 against the dollar, putting the risk of government intervention on high alert. We saw similar conditions back in late 2024 and through 2025, which were followed by sharp, sudden market moves. Traders should therefore be looking at options to manage this volatility, as implied volatility for USD/JPY has now reached a two-year high of nearly 15%.
Bond yields are the other major focus, with the 10-year JGB now at 2.41%, a level unimaginable just a few years ago. While the Bank of Japan signals more rate hikes are coming after raising its policy rate to 1.0% last month, the market may have already priced much of this in. We believe shorting JGB futures from here carries significant risk, and traders might consider strategies that bet on yields stabilizing in the near term.
Japan’s discussions with Iran for energy supply highlight a growing unease over Middle East stability and its impact on costs. After oil prices spiked above $110 per barrel during the supply scares of 2025, any new disruption could send prices soaring again. This makes long positions in crude oil derivatives an interesting hedge against the geopolitical risks that are clearly worrying Japanese officials.
We must also remember that the weak yen, while problematic for consumers, has been a huge benefit for Japan’s exporters. The Nikkei 225 index’s 18% gain over the last twelve months was fueled almost entirely by this currency effect. Traders could look at buying Nikkei futures while using options to protect against a sudden snap-back in the yen.
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