The Yen's Quiet Turnaround: Why BoJ Tapering Pause Spells Opportunity in Currency and Bonds

The Bank of Japan (BoJ) stands at a crossroads. With its June 2025 policy meeting on the horizon, the central bank faces mounting pressure to pause its gradual reduction of bond purchases—a move that could spark a long-awaited yen rebound and reshape global financial markets. For investors, this moment presents a rare tactical opportunity to capitalize on shifting monetary policy, deteriorating bond market liquidity, and the yen's undervalued status.

The Catalyst: BoJ's Tapering Crossroads

Since 2023, the BoJ has been trimming its monthly bond purchases by ¥400 billion quarterly, aiming to halve them to ¥3 trillion by March 2026. Yet recent volatility in super-long Japanese government bonds (JGBs)—with 30-year yields hitting 3.14% and 40-year yields surging to 3.6%—has exposed the risks of this strategy. Market participants now urge the BoJ to pause or slow further tapering after 2026, citing poor liquidity in long-dated bonds and investor demand mismatches.

The central bank's dilemma is clear: Continue tapering and risk destabilizing a market where it already holds nearly half of all JGBs, or halt reductions and signal a retreat from normalization. The latter scenario—a likely outcome—could be the catalyst for a yen rally.

Why the Yen Will Benefit

The yen has languished in recent years as the BoJ lagged behind global peers in tightening monetary policy. But a tapering pause could reverse this trend. Here's why:

1. Closing the Yield Gap: U.S. Treasury yields have surged to multi-decade highs, while Japanese 10-year bonds hover near 0.5%. A BoJ pause would reduce the risk of further JGB yield spikes, narrowing the gap with U.S. rates and making yen-carry trades less attractive.

2. Reduced Selling Pressure: The BoJ's massive bond purchases have kept yields artificially low. A pause would eliminate its role as a buyer of last resort, potentially stabilizing prices and reducing downward pressure on the yen.

3. Fiscal and Political Risks: With Japan's upper house election in July and calls for fiscal expansion, the BoJ's liquidity support for government debt could become critical. A tapering pause would ease concerns about funding costs spiking, indirectly supporting the yen.

Tactical Plays for Currency and Bond Markets

Investors can position for a yen rebound and JGB market stabilization through three strategies:

1. Go Long on the Yen

The USD/JPY pair has traded near 150 for months—a level that's historically overextended. A BoJ tapering pause could push it below 140 by year-end.

Action: Buy JPY/USD futures or options with a strike price below 140.

2. Short Super-Long JGBs

While the BoJ may pause tapering, super-long JGBs remain oversold due to structural supply-demand imbalances. Investors can profit from a technical bounce while hedging against yen strength.
Action: Use inverse JGB ETFs (e.g., DBJP) or short positions in 30-year JGB futures.

3. Arbitrage Yen-Carry Trades

As global yields stabilize, unwind leveraged carry trades that bet against the yen. This could create a self-reinforcing yen rally as capital flows reverse.
Action: Sell AUD/JPY or NZD/JPY pairs, which are highly sensitive to yen strength.

Risks to the Outlook

The BoJ could surprise markets by accelerating tapering, but the risks of bond market dysfunction are too acute. A larger concern is global inflation resurging, which could force the BoJ into a tighter corner. Monitor the U.S. CPI data closely—a 4%+ print could undermine the yen's gains.

Conclusion: A Turn in the Tide

The BoJ's likely tapering pause is more than a technical adjustment—it's a signal that Japan's ultra-loose monetary era is ending. For investors, this creates a once-in-a-decade opportunity to profit from yen appreciation and JGB market stability. Act now: The yen's rebound is already in motion, and those who position early will capture the full upside.

The clock is ticking—June's policy decision could be the spark that ignites a multiyear yen rally. Don't miss it.

This article reflects analysis as of June 1, 2025. Always consider individual risk tolerance and market conditions before making investment decisions.