Yen rebound (JPY): a systemic threat?

The Japanese yen is close to its lowest level in 40 years and has been the weakest currency in the FX market for several years. However, since the end of January 2026, it has shown a bullish impulse that could mark the beginning of a longer-term upward phase. Could such a regime shift in the yen’s trend represent a threat to Japan, the foreign exchange market, and global finance in general?

First, it is important to keep in mind that the recent rebound in the yen (JPY)—that is, the decline in USD/JPY since last Friday—does not yet change the yen’s underlying trend. The yen remains in a broader downtrend. However, if this underlying trend were to reverse from bearish to a new long-term bullish trend, then significant risks for global finance could indeed emerge. These risks are not driven by the yen rebounding per se, but rather by the speed and momentum of any potential appreciation of the Japanese currency.

The main systemic risk would stem from the unwinding of yen carry trade positions that are still outstanding. At the same time, it should not be overlooked that a yen rebound can also have positive effects, particularly for the Japanese economy, which is seeking to combat inflation.

Here is where the systemic risk to global finance could arise:

• If the yen rebounds too quickly (speed is the key factor), there could be a full unwinding of the approximately USD 200 billion in remaining yen carry trade positions, potentially triggering a global market sell-off

• If the yen rebounds sharply while Japanese interest rates continue to rise, a major source of global funding would disappear

• If the yen rebounds too strongly and too quickly, Japanese institutional investors may
repatriate capital invested abroad into domestic assets, triggering selling pressure on global equity markets

• From a technical perspective, USD/JPY must not fall below the 140 JPY support level



These risks must nevertheless be nuanced and placed within a broader macroeconomic context. A persistently weak yen has certainly supported the competitiveness of Japanese exports and boosted the profits of large listed companies, but it has also imported significant inflation, particularly in energy and food. In this context, a controlled rebound in the yen could instead be viewed as a factor of macroeconomic stabilization for Japan.

A stronger yen would help reduce imported inflation, improve the purchasing power of Japanese households, and restore some credibility to the Bank of Japan’s (BoJ) monetary policy, which has long been perceived as ultra-accommodative and isolated compared with other major central banks. It would also give the BoJ greater room to gradually normalize its interest rate policy without triggering an inflationary shock.


In summary, a yen rebound is not, in itself, a systemic threat. It only becomes potentially dangerous if it is too rapid, too violent, and leads to a sudden end of the yen carry trade. Under a central scenario of gradual normalization, a stronger yen could instead help reduce some of the imbalances accumulated over recent years, both in Japan and globally.




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