Since the Fed began cutting rates in late 2024, further easing has stalled in 2025 due to persistent inflation, frustrating market hopes.

A key market dislocation has emerged: despite rising U.S. 10-year Treasury yields, the U.S. dollar has fallen to a 3-year low — breaking the usual positive correlation between yields and the dollar
At the same time, Japan is facing potential stagflation, with zero GDP growth and high inflation. However, the dollar’s weakness has masked the yen’s downtrend in the USD/JPY exchange rate as seen through TraditionData’s broker desk-sourced FX Spot Rate and US Treasury Order Pricing data.

Historically, such divergences correct themselves — either through a stronger dollar or falling yields. The yen’s performance may be pivotal in signaling which path markets take next, especially amid ongoing fiscal and trade pressures.

Two key dislocations have occurred in the dollar/yen-yield dynamic since 2024:

  • Summer 2024: The yen fell sharply due to a widening rate gap and BoJ’s expansionary monetary policy, but quickly rebounded after a carry trade unwind.
  • Spring 2025-Present: The latest disconnect, driven by loss of confidence in U.S. assets, remains unresolved.

At TraditionData, we source comprehensive foreign exchange and fixed income data directly from our world leading interdealer broker desks giving market participants the insights they need to navigate an increasingly complex landscape.

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