The Yen Trade: Still Tempting, But Tough to Hold

At the start of 2025, the Japanese yen was one of the year’s hottest currency trades — but that momentum is faltering. Here’s why the yen trade is compelling long term, but frustrating in the short term.

Long-Term Bull Case

• Many analysts and institutional investors still believe the yen will appreciate, especially as Japan slowly exits its ultra-low interest rate era.
  
• The yen tends to rise during risk-off periods and amid global volatility — making it a safe-haven asset in uncertain times.
  
• Interest in yen call options is rising, showing continued optimism.
  

But… Here’s What’s Stalling the Rally

1. Cautious BOJ

• The Bank of Japan raised rates in January 2025 but has since paused further hikes, waiting to assess the damage from Trump’s new tariffs.
  
• This “wait-and-see” stance is frustrating traders who expected a quicker policy shift.
  

2. High Holding Costs

• With U.S. interest rates still over 4% and Japan’s yields around 0.5%, the carry cost is brutal.
  
• Investors earn little or nothing holding yen, and if it weakens, they get hit with a double whammy: losses + low yield.
  

3. Trump’s Trade Tariffs

• Trump’s new tariff threats — up to 35% on Japanese imports — could devastate Japan’s export-heavy economy.
  
• That uncertainty makes investors wary of fully committing to a yen long trade.
  

Market Reaction

• Net long yen positions have dropped to $11.41B from $15.7B in April (CFTC data).
  
• Still, many like Allspring’s Matthias Scheiber say dips are buying opportunities, expecting long-term strength.
  

Expert Takes

 “Numerous long-term tailwinds for the yen… it’s just about managing the journey.”
— James Athey, Marlborough

 “The cost of holding the position might be too high for them to recover.”
— Bo Zhuang, Loomis Sayles

 “Yen has always alternated between super excitement and super disappointment.”
— Moh Siong Sim, Bank of Singapore

Conclusion

The yen is still a solid long-term bet, especially if U.S. policy turns dovish or global risk increases. But the short-term pain — from cautious Japanese policy and hostile U.S. tariffs — makes it an expensive and volatile ride.

Traders love the yen — but only the patient and tactical will profit.