USD/JPY Volatility Spikes as Fed-BoJ Policy Gap Narrows
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The widening-then-narrowing gap between Fed and BoJ policy expectations is the dominant forex theme right now. As the Fed holds firm on a higher-for-longer rate path and the BoJ inches away from decades of ultra-loose policy, the interest rate differential that fueled yen carry trades is eroding fast.
This shift is visible directly in USD/JPY price behavior, where volatility has surged as funds unwind long-standing short-yen positions built during the low-rate era. EUR/JPY and AUD/JPY crosses are showing correlated stress, signaling the unwind isn't isolated to a single pair.
Government intervention risk remains elevated, and traders should factor in sudden liquidity gaps around any official commentary from Tokyo.