JPY: 30 Years Income Explodes to 4% – Who is Selling and Impact on USD/JPY

[Igor Pereira]

Traders, the chart shows a historical collapse. The yield (yield) of Japan's 30-year title went up to 3.903% (almost 4%), a level not seen in decades. That means the price of the bonds is melting.

By Igor Pereira Financial Market Analyst

The question is who's selling and the key to understanding where the yen is going. Below is the market autopsy and projection for USD/JPY.

Bank of Japan (BoJ) holds more than 50% and would not sell to break its own market. So where does the pressure come from?

• Domestic Institutional Investors (Securities and Banks): They hold about 38% of the market. Traditionally, they buy these bonds. But now, with extreme volatility and fiscal fear (due to PM Takaichi's tax plans), they have entered a "Great Buyers" (Buyers Strike). They stopped buying, leaving a liquidity vacuum.

• Foreigners (Hedge Funds): Foreigners hold only ~12% of the total stock, but are responsible for 65% of monthly trading volume. They are "shorting" (sold out) the future market, betting that BoJ will lose control of the interest curve.

The collapse of the JGBs creates two opposing forces in USD/JPY. You need to know which one will win.

Scenario A: The "Carry Trade Unwind" (USD/JPY)

• Logic: Higher yields in Japan (almost 4% in 30 years) make domestic bonds finally attractive to Japanese insurance companies, which today have trillions of dollars invested in the US and Europe.

• The Movement: If they start selling US Treasures to bring the money back and buy these JGBs at 4% ("Repatriation"), there will be a massive demand for Yen.

• Result: The yen strengthens violently. USD/JPY falls towards 154.00and less, because the interest differential between the US and Japan decreases dramatically.

Stage B: The Tax Panic (USD/JPY)

• Logic: If the market interprets this interest increase not as "normalization", but as a solvency crisis (the Japanese government cannot pay its debts without printing infinite money), the yen loses value as a value reserve.

• The Movement: Capital leak. Investors sell yen to buy dollars and gold to protect themselves from fiscal collapse.

• Result: USD/JPY fires above 159.00/160.00 in a panic movement.

In the short term, volatility is the king. BoJ will probably be forced to intervene (as we saw in the "199th operation") to calm the market.

My Vision: The dominant force in the medium term will be the Repatriation (Scenario A).

1. Sale Rallys: The yield of 4% in Japan is a global Game Changer. The Japanese money will come home. This is structurally negative for USD/JPY.

2. The Trigger: Stay tuned for any sign that Japanese Life Insurers are starting to buy JGBs at these levels. The moment they enter, USD/JPY can melt.

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Game Turned: The Level of "Capitulation"

There is an exact price level in USD/JPY where the algorithms of Carry Trade are programmed to liquidate positions massively if Japanese income crosses 4.1%.

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