The "Asian Crossroads" – Japanese Interests Overcome China and USD/JPY It's on Mira

[Igor Pereira]

We're witnessing a black swan event on the Asian bond market. For the first time in decades, the financial logic of the East has reversed.

The cost of Japanese government debt (JGB) has skyrocketed and exceeded China's equivalent income. This is not just a statistic; it is a regime change that threatens to implode the Carry Trade global and redefine the Yen trend.

By Igor Pereira Financial Market Analyst

Below is Bloomberg's chart analysis and the direct impact on your USD/JPY trade.

The image confirms the rupture of a 15-year trend.

• Japan (Black Line): The yield of the 10-year-old JGB exploded from -0.28% (2019) to 2.10%, the highest level since 1999.

• China (Blue Line): Simultaneously, Chinese 10-year yield collapsed from 3.05% to 1.86%, renewing historical minimums.

• The Cross: Japan now pays more to borrow money than China. The market is pricing tax risk in Tokyo and stagnation in Beijing.

Why is this happening?

• In Japan (Sanaenomics): Prime Minister Sanae Takaichi is pushing for aggressive fiscal expansion, with a record budget for 2026 (including military spending). To finance this, the government will need to issue mountains of new titles. At the same time, BoJ is raising interest to combat inflation and normalize politics. Result: High vertical yields.

• In China: The economy is slowing down (real estate deflation), and the Central Bank (PBOC) continues to cut interest to try to revive growth. Result: Free fall yields.

This scenario creates a "perfect storm" for the Yen, but in two opposite directions (Extreme Volatility).

• Yene (USD/JPY bass player):

  • Interest Difference: With Japan paying 2.1% (and rising) and the US cutting interest by 2026, the rate differential is shrinking. This makes the yen more fundamentally attractive.

  • Carry Trade's death: The yen is no longer "free money." Traders who took loans in JPY to buy USD or Gold are watching their funding costs go up. If they take off, we'll have a massive purchase of Yen (Repatriation), taking down USD/JPY.

• Weakness of Yen (Bullish for USD/JPY):

  • Tax risk: If the market starts seeing Japan's debt as "unsustainable" due to Takaichi's spending, the yen can be sold not by interest differential, but by loss of sovereign trust .

  • Capital Escape: Japanese investors can continue to seek higher income abroad (USA) if domestic inflation corrodes the real gains of JGBs.

The Japanese titles are in a "lose-lose" position, but USD/JPY is ready to explode.

My Vision: The JGBs' discharge to 2.1% is the mine canary. The risk of a Carry Trade Unwind (outside positions) is now the biggest threat to the global market.

1. Short Term: Expect erratic volatility in USD/JPY while the market tests BoJ's tolerance.

2. Trigger: If the 10-year-old JGB breaks down 2.2% - 2.3%, expect a violent strengthening of the Yen (USD/JPY fall) as global funds run to cover your expensive loans.

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Game Turned: USD/JPY Collapse Level

There is a price level in the USD/JPY pair which, if lost, will confirm that the Japanese repatriation started for real. Our members Premium are already positioned with Puts (sales options) on this key level.

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