Crypto & Forex March 9, 2026 0 Comments

JPY’s Volatility Shock: The Unexpected Catalyst That Could Ignite a Market Rebound—Are You Ready to Ride the Wave?

Is the Japanese Yen gearing up for a surprise comeback, or is it just biding its time while the world dances on a razor’s edge of volatility? MUFG’s top strategists — Derek Halpenny, Lee Hardman, and Abdul-Ahad Lockhart — have been watching closely, and despite the recent market jitters, the Yen hasn’t yet joined the party. The BoJ’s trade-weighted JPY index sits stubbornly near its year-to-date lows, teasing us with the possibility that this isn’t the typical story of a quick rebound. But here’s the kicker — history shows that when volatility spikes, the Yen often rallies sharply. Could a squeeze on those hefty JPY-funded carry trades finally trigger a counter-trend recovery if risk aversion steps up its game? The twists and turns in this currency saga are anything but predictable, especially given Japan’s unique position amid energy shocks, shifting rates, and global conflicts. If you’re thinking about hedging your bets or just curious about the next move in FX markets, hang on tight — this one’s worth a close watch. LEARN MORE

MUFG strategists Derek Halpenny, Lee Hardman and Abdul-Ahad Lockhart note that the Japanese Yen has not yet benefited from the latest volatility spike, with the BoJ’s trade‑weighted JPY index near year‑to‑date lows. However, they stress that previous volatility shocks triggered sharp JPY rallies, and a squeeze on accumulated JPY‑funded carry trades could see a counter‑trend Yen recovery if risk aversion intensifies.

Carry trade risks for Japanese Yen

“On the other hand, funding currencies such as the JPY have not rebounded. The BoJ’s trade‑weighted JPY index remains close to year‑to‑date lows. The JPY strengthened on the last two occasions when FX volatility spiked, first in April 2025 and again in the summer of 2024.”

“During the last major energy price shock in 2022, the JPY was one of the worst‑performing G10 currencies (alongside the SEK), as Japan was hit by a sharp negative terms‑of‑trade shock and the BoJ maintained a cautious stance, keeping rates on hold while the Fed and other major central banks lifted rates away from the zero bound.”

“This policy divergence encouraged the build-up of JPY‑funded carry trades.”

“The trade‑weighted JPY has weakened significantly since that 2022 energy shock by around 23%, with over half of those losses occurring after market volatility peaked in April 2025 when Trump announced his Liberation Day tariffs.”

“This price action highlights the risk that the JPY could stage a counter trend rally if the volatility shock from the conflict in the Middle East intensifies triggered by a squeeze of JPY‑funded carry positions that have been built up since the Ukraine conflict began in 2022.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)