
While the initial yen strength appears to have been driven by short-covering, the political situation in Japan remains precarious. Markets have yet to fully price the probability of Prime Minister Ishiba stepping down, which would reintroduce fiscal uncertainty, risk of stimulus, and broader market instability historically supportive of yen strength.

LDP internal pressure is mounting, and key leadership terms expire in September.

Trade negotiations with the U.S. are fragile; a failed deal could trigger new elections or fiscal pledges.

The JGB market is already pricing in a steeper curve, suggesting rising concerns about fiscal credibility.

SHORT USDJPY

Jul 23 2025