Apollo Says Japan’s Fiscal Outlook Has Replaced Rate Gaps as Yen Driver

Key Point

Apollo Global Management Chief Economist Torsten Slok said the yen carry trade broke down after the April 2, 2025 rollout of sweeping US tariffs. The US 10-year Treasury yield was 4.64% on August 6, while Japan’s 10-year bond yield was 2.76%. Japan’s fiscal 2026 budget reached a record 122.31 trillion yen, and debt servicing reached 31.28 trillion yen. Prime Minister Sanae Takaichi said her debt-financed spending push will still deliver a primary balance surplus. Vincent Chung said the market’s base case appears to be that intervention may slow yen depreciation rather than cause a lasting reversal.

Market Sentiment

Cautiously Bearish, Risk-off, Macro-driven, Volatile.

Reason: Apollo said the yen carry trade broke down after April 2025, which signals weaker confidence in a long-standing macro funding trade.

Similar Past Cases

This type of carry-trade breakdown typically turns a stable funding trade into a volatility-sensitive trade. The key difference is that the current case links yen weakness to Japan’s fiscal outlook rather than only to interest rate gaps.

Ripple Effect

A weaker carry-trade anchor could make currency volatility a larger driver of global risk appetite. If volatility stays elevated, traders may reduce leveraged positions that depend on cheap yen funding.

Opportunities & Risks

Opportunities: Investors can monitor Japan’s next monthly intervention report due late August for confirmation of official currency support. Confirmation could help assess whether intervention remains symbolic or becomes more forceful.

Risks: Investors can watch whether volatility subsides. Persistent volatility could keep pressure on carry trades and raise the risk of faster position cuts.