Newsletter · · Ashutosh Agarwal

The Yen Nears 160 and Japan Warns It Will Act Again - G10 FX & The Carry Trade - Week of September 28, 2026

G10 FX and carry-trade synthesis for the week of September 28, 2026. Dollar-yen climbed to the door of 160 and Japan's finance minister vowed to act again, while a US bond sell-off moving at 2023 crisis speed pushed the dollar higher, squeezed carry trades, and prompted J.P. Morgan to argue the franc and krona are replacing the yen as the market's funding currencies.

G10 FX & The Carry Trade

Week of September 28, 2026: The Yen Nears 160 and Japan Warns It Will Act Again

Last Thursday this newsletter was all about Europe: a German state election gone wrong and a French bond spread breaking a 14-year line. This week the spotlight swung back to Tokyo, and it got loud.

Dollar-yen climbed right up to the door of 160. Then Japan's finance minister, Satsuki Katayama, stepped in front of the cameras twice in one morning. First she said President Trump had shared his concerns about the yen. Then she said something traders will remember:

"Prime Minister Takaichi is not a reflationist. We will act again in the FX markets if required."

The yen was the best-performing major currency that day.

But the bigger story sits underneath the yen. US interest rates have jumped at a pace we haven't seen since the run-up to the Silicon Valley Bank collapse in 2023. That jump is pushing the dollar higher, squeezing the borrow-cheap-and-buy-higher-yield trades that have paid so well for two years, and quietly changing which currencies the market borrows. Let's get into it.

TL;DR

  • Japan's warning got sharper. With dollar-yen "knocking on that 160 once again," Katayama said Japan "will act again in the FX markets if required," and MUFG's Derek Halpenny sees "a more concerted effort" tied to a closer working relationship with Washington (The MUFG Global Markets Podcast, Sep 25).
  • The US bond sell-off is the engine behind everything. The US two-year yield is up 72 basis points since Jackson Hole, the biggest 21-day jump since March 2023, per Halpenny, and "these kind of fixed income moves do have consequences" (MUFG, Sep 25).
  • J.P. Morgan is sticking with the dollar. Its FX team says its EUR/USD target of 1.13–1.14 for the second half is getting close ("we're certainly getting there") and calls the setup "pretty decent" for the dollar (At Any Rate, Sep 25).
  • The market is changing which currencies it borrows. The Swiss National Bank was "more dovish than markets expected," and J.P. Morgan now sees "a rotation in the funders": the Swiss franc and Swedish krona take the yen's old job, because Japan keeps threatening to step in (At Any Rate, Sep 25).
  • Carry looks too comfortable. State Street's Tim Graf says emerging-market carry earned 10% over the past year with only 4–4.5% volatility, and the correlation between high-yielding currencies is "near its lowest level in 20 years." His verdict: "It's kind of hard to imagine conditions getting better for carry" (Street Signals, Sep 24).
  • The ECB will probably hike once more, then stop. Bank of America now has a December hike as its base case, with "at most" 100bp in total, and expects September eurozone inflation at 3.9% against a 3.6% consensus (Global Research Unlocked, Sep 25).
  • Sterling is feeling the strain. Saxo's John Hardy notes UK-versus-US yield spreads are "getting down there into the lows, stretching back quite some way," with "a little bit of stress into sterling." He's watching EUR/GBP 0.86 (Saxo Market Call, Sep 24).

What's new

1. Japan turns up the volume at 160

Start with the number that matters most to anyone short the yen: 160.

On Wednesday, Hardy flagged that dollar-yen had tested 158.50 "almost to the pip." In his words, that is "the local key for unlocking the range," with the 200-day moving average and a cluster of chart levels sitting there, "and then you get into the 160 level" (Saxo Market Call, Sep 24). At that point, he noted, Japan's finance minister was only offering "intervention light" comments and would not name specific levels.

By Friday dollar-yen was higher still, and the warnings had grown teeth. Halpenny described the sequence on the MUFG Global Markets Podcast (Sep 25). Dollar-yen was "knocking on that 160 once again until overnight." Then Katayama spoke twice: first to say Trump had "expressed concerns," then to say Japan would "act again in the FX markets if required."

Why does Halpenny think this time is different? Because the warnings now come with a partner. He links it to "this perception of a tighter relationship with Washington in terms of coordinating FX, obviously coming back to the joint intervention, even though it was kind of symbolic." Add the "checking of rates reported by the Nikkei last week" (a rate check is when officials call banks to ask where the currency is trading, a classic warning before real intervention), and "it's becoming a bit more persistent. And I think we're beginning to get some greater sensitivity to that in dollar-yen."

The market has seen the US step in before, and that memory matters. On IBKR Podcasts (Sep 22), Daiwa Asset Management's Nicholas N explained how the earlier joint move worked. Japan would normally have to sell US Treasuries to raise dollars to buy yen, which pushes up US borrowing costs, "which is obviously not what the US wants." So Washington did the buying itself, and "the US has sold euros in order to do so." The result, he said, was a move from 163 to around 157 that was "a lot higher than the market expected," which "scared off a lot of hedge funds and speculators" who had built a near-record short yen position. His conclusion: "at least in the short term, the Japanese yen is likely to range trade."

2. The sceptic's case: Japan is only renting a stronger yen

Not everyone thinks the threats will work. Jeffrey Snider made the strongest case against on Eurodollar University (Sep 26).

His numbers: the Bank of Japan's policy rate is now 1.25%, the highest since 1995. In one recent round, Japan's finance ministry spent "roughly 15.4 trillion yen or more than $96 billion... buying yen in less than a month," and "around 27 trillion yen during the year" in total. (That's well above the ¥17 trillion J.P. Morgan's Junya Tanase cited on At Any Rate last week. The gap is probably down to which operations each counts, so treat the exact total with care.)

The result, in Snider's view, is a string of "violent rallies" that "failed to lead to lasting changes in direction." Tokyo "forced traders, speculators, out of short yen positions without eliminating the commercial demand for dollars." And now that those short positions have been cleared out, there's room to rebuild them. His line:

"Japan spent tens of trillions of yen, raised interest rates, and threatened to do more to what? Temporarily rent a stronger exchange rate."

His explanation is that Japanese insurers and pension funds care about risk-adjusted returns, not just the headline yield. When higher Japanese yields come with bond-market volatility and policy uncertainty, "Japanese institutions may still prefer foreign assets." He fully expects Japan to intervene if the yen crosses 160 ("you should probably count on it"), but thinks it will only "produce yet another violent short-term rally."

This is a commentator's opinion, not a bank's house view. But it lines up with what the bank desks said last week about Japan's firepower running low.

3. The real engine: US rates are moving at crisis speed

Everything else this week came back to one thing: the US bond market.

Halpenny put it in historical context. Since Jackson Hole, "the two year yield... is up 72 basis points. So that's a 21 day period. And essentially looking back through history, that is the biggest 21 day jump in the two year yield since March 2023." What happened after the last one? "We then had the biggest two day drop in the two year yield, nearly 90 basis points since Black Monday in 1987" as the regional banking crisis hit (MUFG, Sep 25).

He was careful not to predict another banking crisis. But he did say "the risks are definitely higher that there could be some kind of risk event around the corner." And he explained how it reaches currencies. Fast-moving funds are nursing big losses on bonds, so they sell whatever has made money to cover them. In FX, "carry has been a hugely profitable trading strategy. So you'd include short yen in that. But also... Latam." He flagged the Mexican peso, "which has come under pressure this week," the Chilean peso, and the Brazilian real. With volatility picking up in emerging-market currencies and in dollar-yen, "that's a recipe for also encouraging liquidation of carry."

Hardy made the same point in fewer words: the MOVE index (a measure of how wildly US bond prices are swinging) "is the dominant force here across markets," and "if the move index is spiking higher... it is certainly putting the pressure on risk sentiment for very good reason" (Saxo, Sep 24).

The next test is Friday's US jobs report. Halpenny puts the consensus at 100,000 jobs, down from 162,000 last month, with unemployment at 4.1%. A number close to consensus "is not going to be enough to see a retracement in yields"; it would take "something close-ish to zero or obviously below" to pull yields meaningfully lower.

4. J.P. Morgan: stay with the dollar, 1.13–1.14 on EUR/USD is close

J.P. Morgan's FX team spent the first half of its At Any Rate episode (Sep 25) making the case for a stronger dollar. One strategist called US inflation "all systems firing," pointed to "a little bit more daylight U.S. versus others," helpful valuations and positive late-September seasonality, and concluded it "continues to create like a pretty decent setup for the dollar here."

Meera Chandan agreed, but with a twist of honesty: the dollar has actually done less than you'd expect "given everything that has happened, all the check boxes that have now been checked." The house target for EUR/USD is 1.13–1.14 for the second half, "and we're certainly getting there." Past that, she finds it "hard to see how much lower we're getting" without a strong payrolls number or another catalyst. Her reason for some caution is worth noting: Europe "is surprising to the upside here as well on a growth perspective," even with high energy prices.

Her most useful idea for anyone running a book is what she calls a "rotating pillar." Either the dollar trade is working or the carry trade is, and right now "we're in the midst of the dollar leg." "FX carry seems to have taken a breather as this repricing is going through," she said, but once rates markets calm down, "we actually can see a catch up from the carry side." Put simply: the carry trade isn't dead, it's resting.

That sits oddly next to MUFG's warning of carry liquidation. One bank says carry is resting; the other says it could be sold to cover bond losses. Both agree the bond market decides which.

5. The funding switch: franc and krona take over from the yen

This may be the most practically useful idea of the week.

A "funding currency" is the one you borrow because its interest rate is low, so you can buy something that pays more. For years, the yen has been the world's favourite. But J.P. Morgan argues Japan's constant threats to intervene make it a risky one to borrow. As Chandan put it: "In contrast to yen where even today we continue to get verbal intervention as dollar-yen has headed higher... it does look like almost like a rotation in the funders... with Stockie [the Swedish krona] and Swissie in the spotlight" (At Any Rate, Sep 25).

Last week's European central bank meetings backed that up. J.P. Morgan's Octavia Popescu took them one at a time:

  • Swiss National Bank: "more dovish than markets expected," giving "no signal that a hike is coming despite two that were priced over the next year." The bank "seemed very comfortable with the inflation outlook and with the currency depreciation, which I think from their side is a green light to keep the downbeat stance on the Swiss franc." If the franc does jump, she argues, it would be because of "global factors rather than the SNB pushing back."
  • Riksbank (Sweden): signalled hikes will start this year, but less than the market was pricing. "It still very much remains a funder in the global context."
  • Norges Bank (Norway): hiked, signalled "higher for longer," and J.P. Morgan's economists expect another hike. Popescu says the Norwegian krone "is undergoing a structural shift being a high-yielder within G10 now," with its yield advantage "at historical highs," and "we are leaning even more into it now."

Hardy gave the Swiss numbers. The SNB forecasts 0.7% inflation this year, and the same for 2027 and 2028. "Switzerland is just in a whole different universe here... this is not exactly looking like SNB is in any hurry to pull the trigger," and there was "a decent little leg of Swiss franc weakening on the back of that" (Saxo, Sep 24).

On the other side of the trade, Chandan pointed to Australia and Norway: both currencies are "yielding above the dollar for the first time in a decade." MUFG sees the Reserve Bank of Australia hiking next week (90% priced, taking its rate to 4.6%) after "a fairly hawkish speech from Governor Bullock." But Halpenny added the obvious catch: "if you're going to be talking about carry liquidation in the G10 space, Aussie will certainly suffer" (MUFG, Sep 25).

6. Carry: great returns, worryingly calm

State Street's Tim Graf devoted a whole episode of Street Signals (Sep 24) to whether the carry trade has become too comfortable. It's the most careful piece of work on the subject this week.

The returns first. Over five years, the Bloomberg FX Carry Index earned "just over 5% annualized with an annualized volatility also around 5%." The emerging-market-only version made about 10% a year with about 9% volatility. Over the last year, though, it earned 10% with volatility of just "4%, 4.5%, and the maximum drawdown has also been about 4%." That's the kind of smooth return that draws in more money.

Then positioning, which is more reassuring than you might think:

  • Yen: big institutional investors are still underweight, but not at extremes. Hedge funds, which "were quite short yen a few weeks ago," are "now actually slightly long" after the intervention. "It's really hard to call the funding side of yen carry trades a large consensus short."
  • Swiss franc: futures positions are only slightly short, and "our institutional holdings show actually a large overweight in the Swissie." So there's room for more franc borrowing, which fits J.P. Morgan's funding-switch idea.
  • The currencies people buy: speculators hold a net long in the Mexican peso and Australian dollar, and "the Mex position in particular is pretty large relative to history." Real-money investors are more balanced: overweight only the Turkish lira and Indonesian rupiah, underweight the Brazilian real and South African rand, and "institutions are starting to sell Brazil ahead of the elections."

What worries him is correlation. "The average correlation of 7 high-yielding EM currencies relative to each other, the average is near its lowest level in 20 years... When correlation starts to look really low relative to history, as it does now, that's when I start to get nervous." It's the same pattern as calm stock indexes hiding very jumpy individual stocks. It's the Minsky idea ("stability begets instability"): long quiet stretches make leverage look cheap and carry look riskless.

He's not calling a blow-up: "I have no real reason to think that a blowup of carry trades is imminent." But his closing line is the one to keep:

"It's kind of hard to imagine conditions getting better for carry in the coming weeks than they already are. Rates, after all, are rising pretty much everywhere, and market historians will know that rising rates can often come with unforeseen and uncomfortable consequences down the line."

On the yen specifically, he's waiting for a change in how people think about it, where investors "might no longer see it as this one-way bet on weakness." He admits the Bank of Japan's meeting was supposed to help, and "that was a pretty big fail." The real trigger, if Japanese money ever starts flowing home, "could still be a year or two away, and it's very expensive to own the yen trying to wait that out."

7. ECB: one more hike, then probably done

In Europe, the question has moved from whether the ECB hikes again to how many more times.

Bank of America's Evelyn Herrmann said on Global Research Unlocked (Sep 25) that her team has "penciled in December now as part of our base case. We still think that the ECB will be done after that third hike. At most, we would expect 100 bps in total." That is more cautious than J.P. Morgan's four-hike call from last week.

A March hike depends mostly on energy. If oil and gas futures "no longer point to that return to oil prices well below 80, and to gas prices well below 50 or let's say 40 by end of 2027," and instead stay "closer to 100 dollar or euro for both gas and oil beyond the winter, then March becomes more likely." Going past four hikes would take the ECB's "severe scenario," which assumes "$130 for oil prices all the way through 2027." We're "still well below" that.

She expects this week's inflation data to look bad on the surface: September headline at 3.9% (up from 3.2% in August, because of fuel prices) against a consensus of 3.6%. Underlying ("core") inflation, which strips out energy and food, should hold at 2.4%, which "would actually start to constitute downward surprises compared to what the ECB has penciled in." Her bigger point is that growth won't speed up the way the ECB hopes, which keeps core inflation in check.

J.P. Morgan's rates team sees markets pricing an ECB peak rate of about 3.5%, which Kegendra Gupta calls "high compared to our economists' forecast" but typical of hiking cycles (At Any Rate, Sep 25). For context, on The Options Insider (Sep 23), Russell Rhoads noted markets were pricing roughly three more ECB hikes against about two from the Fed. And the hosts of Many Happy Returns (Sep 23) reminded listeners the ECB is starting from a low base: its deposit rate is going to 2.5%, while the Bank of England is already at 3.75%.

8. France and Germany: still the euro's weak spot

The political story from last week hasn't gone away. It just got a longer timeline.

On BBC's Wake Up to Money (Sep 21), ING's chief eurozone economist Carsten Brzeski put numbers on the German problem. Nationally, the far-right AfD "is far ahead, is the largest party... polling close to 30%," while Merz's CDU is "at 20%. He is the... chancellor with the lowest popularity polls ever of all German chancellors." The next big test is the North Rhine-Westphalia state election next spring. On France, Brzeski said borrowing costs "have gone through the roof," with the gap to Germany at "another record high," ahead of a presidential election early next year.

J.P. Morgan's Matteo Mamprin offered a calmer read for bond investors (At Any Rate, Sep 25). The French problem is "idiosyncratic," meaning specific to France, "with limited spillover." Its bond clients "broadly think it's too early to position for the 2027 presidential scenarios," and "the budget process may prove less noisy than feared." One detail matters for the euro: EU-issued bonds "held up like stronger government bonds" during the French sell-off, helped by "investors rotating out of France and by potential flows out of the dollar into euro."

The more worried view came from Eric Wallerstein of Clocktower Group on Monetary Matters (Sep 23). "I do not like European growth," he said, and he's betting US rates rise relative to "Europe, Canada, and then it became Japan." His reasoning: ECB hikes push up an already-strong currency in an economy where "European trade is half of its GDP," and French growth is below the interest rate France pays while its "debt stock is above 100%." He also noted that "the left wing candidate in the French election wants to cancel debt at the ECB, which would be terrible for term premium there."

9. Sterling: shrinking yield edge, and a bond-sale fix that may not fix much

The pound had a harder week. Hardy's key observation: "UK versus U.S. yield spreads are getting down there into the lows, stretching back quite some way." That means UK bonds pay less extra over US bonds than they have for a long time, which chips away at sterling's appeal as a higher-yielder. He saw "a little bit of stress into sterling," which "makes a little bit of sense in a risk-off world," and is "watching that Eurosterling 86 plus level again" (Saxo, Sep 24).

The Bank of England's decision to slow its sales of long-dated government bonds ("gilts") got more pushback. On The Bitcoin Layer (Sep 25), UK-based commentator Johan Bergman said the same thing Bank of America's rates desk said last week, more bluntly: "they're just moving debt from them to the treasury. So it's just pass the debt around again." Higher oil prices "will overwhelm any relief from the reduced Bank of England selling. The bank can change how gilts react to the market. It cannot remove the inflationary pressure coming from energy." He also named the risk for a country that imports most of its energy and food: "everything goes more expensive when the pound depreciates." (This is a commentator's view, not a bank's.)

The real-economy pressure is clear. On Wake Up to Money (Sep 21), with Brent at $101, haulage boss Tim Ray (vice chair of the Road Haulage Association, 79 lorries) said "our costs are dramatically increased every week" and that businesses are "really concerned about what the budget might bring... at the end of October." The programme also played Bank of England Governor Andrew Bailey telling MPs that Russia's refining capacity "may be about 60% under its normal capacity," so "even if there was... suddenly some settlement in the strait, you would still probably have the crack spread issue." (The crack spread is the gap between crude oil and refined fuel like diesel.) That points to UK inflation staying sticky even if the Middle East calms down, which supports the November hike case, even as the growth picture gets weaker.

10. Does Washington actually want a stronger dollar?

One more thread to keep in mind. Fixed-income investor Henry Peabody, on Monetary Matters (Sep 24), read the joint yen intervention as a sign that "the U.S., broadly, was a little nervous about dollar strength... and they wanted a bit of a bleed valve. So they let Japan take a little bit of strength."

His framework: "the out years are likely going to be focused on dollar weakness," but in the meantime "there is the risk of a continued move higher and a short covering bid in the dollar," especially if the Fed shrinks its balance sheet and dollar funding gets tight. His advice on how to read it: "The Fed and the monetary authorities and the fiscal authorities do not want a dollar substantially stronger than here. So if you do see strength, that could be a tell to look for something out of policymakers somewhere." And, candidly: "I would not want to be a currency trader today."

Chris Whalen made a similar short-term-versus-long-term point on The Julia La Roche Show (Sep 26): "over the past month or so, the dollar's actually rallied. People have been running into dollars because interest rates are rising," but he sees that as "a short-term trade" and stays long gold.

The debate

Fight 1: Does Japan defend 160, or does the yen keep sliding?

The case for a turn: Japan has changed its tone from vague to specific ("we will act again"), says the US president shares its concern, and has a record of joint action with Washington that took dollar-yen from 163 to 157. Speculators have already cut their short yen bets; State Street says hedge funds are now slightly long. Halpenny sees "greater sensitivity" to the warnings. And if US yields finally fall, the main force pushing dollar-yen up disappears.

The case for more slide: Interest-rate gaps still favour the dollar. Hardy notes the US-Japan spread keeps widening "despite this whole transformation of Bank of Japan yield policy." Snider argues interventions only "rent" a stronger yen, and the clean-out of short positions just makes room to rebuild them. Graf says the Bank of Japan's meeting was "a pretty big fail" for yen bulls, and the real trigger (Japanese money coming home) may be "a year or two away."

Honest read: Near term, the risk around 160 is lopsided. Intervention can knock several yen off in a day, while the grind higher is slow. The bigger trend still depends on US yields.

Fight 2: Is carry resting, or about to be sold?

Resting: J.P. Morgan sees carry and the dollar as a "rotating pillar" and expects carry to catch up once rates settle. Norway and Australia now yield more than the dollar, and positioning in the funding currencies isn't crowded.

About to be sold: MUFG warns that bond losses could force funds to sell winning carry trades, and the Mexican peso is already under pressure. State Street finds volatility, option prices and correlations all at levels that have come before past blow-ups.

Honest read: Both sides agree the trigger is the US bond market. If Friday's jobs data takes the heat out of yields, J.P. Morgan's view wins. If the MOVE index spikes again, MUFG's does.

Fight 3: How much does the euro have left to fall?

The euro-bear case is well argued this week: J.P. Morgan's 1.13–1.14 target, Wallerstein's dislike of European growth, record French spreads, and a German chancellor polling at historic lows. The pushback is quieter but real. European growth keeps surprising upward (J.P. Morgan's own words), EU bonds are drawing money that's rotating out of the dollar, and Bank of America's view that the ECB hikes only once more means there's no dovish shock left to price. Nobody on the podcasts this week made the case for EUR/USD 1.20 in the near term. The bulls' argument, where it exists, is a 2027 story.

Trades in play

Ranked by how directly the podcasts pointed to them:

  • Borrow the franc (and the krona) instead of the yen. This is J.P. Morgan's clearest actionable shift: CHF and SEK as funders, because the SNB is "comfortable... with the currency depreciation" and Japan's intervention threats make yen shorts risky. State Street's data shows institutions are overweight the franc, so there's room for more selling. If you still want to be short yen, consider doing it against a basket rather than outright, because 160 is where the intervention risk lives.
  • Own the Norwegian krone as a structural high-yielder. Norges Bank hiked and signalled higher for longer. J.P. Morgan is "leaning even more into" long NOK. Pairing long NOK with short SEK or short CHF fits the "rotation in the funders" idea.
  • Be tactical on the Australian dollar into the RBA. A hike is 90% priced, so the upside from the decision itself is limited. MUFG's warning is that AUD "will certainly suffer" if carry gets sold.
  • Respect 158.50–160 in dollar-yen, and don't chase. Hardy flags 158.50 as the level that opens the range. Snider "counts on" intervention above 160. For options traders, the setup favours owning downside protection in dollar-yen, not adding to longs near the top.
  • Watch EUR/GBP 0.86. Hardy's level. Shrinking UK-US yield spreads and risk-off stress make sterling vulnerable against the euro on the crosses, even though sterling is still the higher-yielder.
  • Play US-vs-Europe rate divergence in rates, not just FX. The Options Insider panel described spread trades between US (SOFR) and European (Euribor/€STR) short-rate futures, or short Bund futures against long Treasury futures, depending on your view. Wallerstein is already betting US rates rise relative to Europe, Canada and Japan.
  • EM carry: trim size rather than direction. Graf's numbers say the returns are real but the calm is unusual. MUFG names the Mexican, Chilean and Brazilian currencies as vulnerable. Speculators' Mexican peso long is "pretty large relative to history."

Read-throughs

  • Bonds lead, currencies follow. A 72bp jump in US two-year yields in 21 days is the headline. The MOVE index is the risk gauge Hardy and Halpenny both watch. In Europe, J.P. Morgan says the EUR 10s30s curve has flattened back to about -20bp as markets price a higher ECB peak.
  • Euro-yen and euro-franc. Last week we flagged euro-yen as the cleaner way to bet on a stronger yen. This week's twist: the earlier US intervention was done by selling euros, per Daiwa, so euro-yen can take the biggest hit on an intervention day. On euro-franc, a dovish SNB and a weaker franc are good news for Swiss exporters (Nestlé, Roche, Novartis, Swatch, Richemont, ABB) and take pressure off any floor.
  • Japanese stocks. Daiwa targets the TOPIX at 4,400 by year-end, from about 4,100, driven by governance reforms and AI-linked names. Japan's 10-year government bond yield has hit 3% (IBKR, Sep 22). A sudden yen spike on intervention is the main short-term risk for exporters.
  • EM and Aussie carry baskets. They're exposed to exactly the risk-off move MUFG describes. Cross-currency correlations near 20-year lows mean a shock could hit them all at once.
  • Emerging Asia under dollar strain. Snider pointed to the Philippine peso at a record low below 62 and India's central bank defending the rupee, including an estimated $106.7 billion short dollar forward position. It's a reminder that a strong dollar hurts energy importers first.

What changed

The yen came back to the centre of the story, and the reason is different from before. It's no longer about whether the Bank of Japan's hike worked (it didn't help the yen). It's about whether Japan, with Washington's apparent blessing, will spend money to defend 160. The warnings are sharper and more frequent, and the market is starting to react to them.

The biggest new idea is the funding switch. For two years the yen has been the default currency to borrow. J.P. Morgan now says the franc and the krona are taking over, and a dovish Swiss National Bank just gave that its blessing. Norway joins Australia as a G10 high-yielder that pays more than the dollar.

Behind it all is a US bond market moving at a speed last seen before the 2023 banking scare. Europe's political risks haven't gone away, but they've settled into a longer timeline (German state elections in spring, the French presidency in 2027). This week, the currency market is taking its lead from US Treasuries and from Tokyo.