#Strategy加码BTC配置 Textbooks have failed — a reverse story unfolds in the USD/JPY market

Recently, the foreign exchange world has exploded. Everyone is asking one question: what’s going on with the yen?

The data is in front of us — the US-Japan interest rate differential has dropped to its lowest since 2022 at 2.09%, and Japanese government bond yields have soared to 2.07%, a historic high since 1997. According to traditional logic, the yen should be strengthening and rebounding at this point. But what happened? The USD/JPY has instead been rising steadily, leaving investors stunned.

Why has the traditional financial rule failed? The answer lies in Japan’s debt quagmire. The debt-to-GDP ratio has long surpassed 230%. Every rise in government bond yields directly eats into Japan’s interest payments. So the market’s logic has reversed — rising interest rates are no longer a positive signal but a warning of debt crisis. Investors are voting with their feet, and the yen is being ruthlessly sold off.

Currently, there are three pressures suppressing the yen: US bond yields remain high, carry trades continue as usual, and the Bank of Japan’s stance on rate hikes is ambiguous. These three forces together prevent the yen from turning around.

To see how the market will move next, we need to watch three signals — when will the Federal Reserve truly start cutting rates, whether the Bank of Japan dares to clearly signal rate hikes, and whether Japanese bond auctions will encounter cold reception.

Ultimately, the debt problem has overwhelmed all traditional exchange rate logic. This is no longer just a game of interest rate differentials but a global capital bet on the final outcome of Japan’s debt crisis.