Japanese Yen: Carry unwind boosts gains against US Dollar - DBS

DBS Group Research economist Philip Wee notes that the Japanese Yen (JPY) has become the best-performing US Dollar Index (DXY) currency in 2026, with USD/JPY falling below its end-2025 level of 156.70. He sees greater downside risk for USD/JPY after a major trendline break, while the late-July joint US-Japan intervention, shifting fiscal concerns toward Washington and broader JPY gains have weakened the carry trade and reinforced the Yen’s haven appeal.

Yen outperforms as carry weakens

"The JPY has reversed its fortunes to become the best-performing DXY currency this year, appreciating 1.5% YTD against the USD overnight."

"Apart from declining below its end-2025 level of 156.70, USD/JPY’s downside risk has also increased due to a break of a major trendline."

"The joint US-Japan intervention in late July was a game changer that established a stronger official backstop against disorderly JPY depreciation."

"US Treasury Secretary Scott Bessent August 18 announcement to double buybacks of long-dated US Treasuries also shifted fiscal deficit worries from Tokyo to Washington."

"The broadening of JPY gains beyond the USD is significant, weakening the carry trade that had undermined the JPY’s traditional haven status during much of Trump’s second term."