USDJPY, GBPJPY, EURJPY Income Explode to Levels 1999, but Who Will Buy Debt?

[Igor Pereira]

The Japanese securities market (JGB) broke down. The chart we're analyzing shows a perfect storm of supply and demand that we hadn't seen in 27 years. Volatility is not just a word of fashion; it is the new reality for those who operate any pair with JPY.

By Igor Pereira Financial Market Analyst

We dissected the collapse of the Japanese securities market and, crucially, the exact price levels for USD/JPY, GBP/JPY and EUR/JPY.

The graph reveals the structural imbalance:

• The Paper Drip (Supply UP): The net offer of securities (yellow bars) is scheduled to explode in 2026 and 2027. Emission of JGBs increased 8% for ¥65 Trillions ($415 Billions). The motive? The record defense budget (Sanaenomics) and pension costs.

• The BOJ Abandonment: The black line shows the change in Bank of Japan's holdings. BOJ is cutting off their purchases aggressively, shrinking their swing on ¥46.5 Trillions. The largest buyer in the market (the "Baleia") is gone.

• The Result: The 10-year yield (JGB 10Y) went up to 2.13%, the highest level since 1999.

Here's the paradox you need to understand to profit: Usually, higher interest increases the currency. But in Japan, the discharge is so fast and motivated by tax risk (fear of solvency) which is creating bidirectional volatility.

USD/JPY: The Fiscal War Zone

• The Scenario: The interest differential is decreasing (USA cutting, Japan rising), which theoretically would overturn the pair. However, Japan's "tax risk" keeps the yen weak.

• Critical Level (Resistance): 157.88 - 158.90. If the pair breaks this zone, it means that the market is ignoring high interest rates and focusing on Japan's insolvency, testing at higher levels as "fakeouts" in 160 are seen;

• Critical Level (Support): 154-156.00 . If the "Carry Trade" starts to dismount due to the cost of 2.13% in Japan, expect a rapid collapse to this level, here is the low structure break;

• Verdict: High-end biases (tax risk), but long-term structural collapse (rate convergence).

EUR/JPY & "> GBP/JPY: The End of "Free Money"

These pair are the favorites of Carry Trade (Borrow yen to buy Euros/Libras).

• The Shock: With the loan cost in Japan jumping from ~0% to 2.13%, the profit margin of these trades has evaporated.

• The Threat: Global Funds $500 Billions in positions of carry Open. If Japanese income touches 2.25% - 2.50%We'll see a global margin call.

• Price Action: Expect violent corrections down (Yen Strengthening) on these pairs as the volatility of the titles increases. GBP/JPY is the most vulnerable due to its inherent high volatility.

Japanese bonds have fallen 6% last year, the worst performance among the major markets. This forces Japanese domestic investors (who hold trillions in foreign assets) to rethink their strategies. If they repatriate money to cover losses or take advantage of the new 2% income, the yen is massively strengthened.

Volatility has returned and the securities market is the engine.

My recommendation:

1. Monitor JGB 10Y: If he breaks up 2.20%, sell GBP/JPY and EUR/JPY aggressively. The dismount of carry trade It'll be brutal.

2. USD/JPY: Watch out for purchases over 157.90. The risk of verbal or physical intervention by the Japanese government is very high at these levels.

3. The Mystery: The high interest rate is not saving the yen. still Because the market fears debt. But when the global panic strikes, the yen will return to refuge.

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