A New Macro Regime: Yen Strength, Dollar Weakness and the Turning Tide

Ahmad Mortazavi
Dec 6, 2025
5 min read

🌍 Big Picture

Global markets entered December with renewed momentum as investors leaned into expectations of imminent monetary easing across the developed world. U.S. equities extended their gains, supported by softer inflation data, resilient consumption and increasing confidence that the Federal Reserve will cut rates at the mid-December meeting. The dollar continued to weaken, touching a five-week low as traders priced in a near 90 percent probability of a 25 bps cut.

In Europe, equity performance was mixed, but sentiment stayed cautiously constructive. Germany’s DAX climbed, while France and the UK lagged due to sector-specific pressure and energy sensitivity. Long-dated European yields moved sharply higher, driven by a global bond sell-off and concerns around fiscal dynamics rather than domestic growth momentum.

Asia delivered a more uneven picture. Japan stole the spotlight as the Bank of Japan signaled it may raise rates in December — igniting the strongest weekly surge in Japanese yields since 2007 and strengthening the yen. China saw modest equity gains despite ongoing economic softness, while India and South Korea benefited from renewed foreign inflows supported by a weaker dollar.

Emerging markets remained one of the week’s standout stories. Capital continued to rotate toward EM equities, supported by attractive valuations, receding inflation and growing expectations of local central bank easing. EM currencies strengthened broadly against the dollar, echoing a global shift toward a more favourable liquidity regime.

Across asset classes, the early-December environment reflected a transition from defensive positioning toward measured risk-taking. Yields stabilised, commodities found support, real estate began to benefit from falling financing costs, and crypto strengthened on improved liquidity conditions. The macro environment remains fluid, but the direction of travel is toward easing, stability, and selective opportunities.

📊 Assets at a Glance

Equities

U.S. indices posted solid gains: the Nasdaq rose 0.91 percent, the Russell 2000 added 0.84 percent, and the S&P 500 continued its steady recovery. Light volumes reflected investor caution ahead of the Fed, but inflation relief and lower yields supported sentiment.

Europe traded mixed: the STOXX 600 edged higher, Germany’s DAX advanced 0.80 percent, and France’s CAC 40 slipped. The FTSE 100 declined 0.55 percent due to energy-sector weakness.

Asia was driven by policy shifts. Japan’s Nikkei rose 0.47 percent but the broader TOPIX fell as BoJ tightening expectations hit rate-sensitive stocks. Mainland China posted modest gains supported by tech enthusiasm, while Hong Kong extended its rebound.

Emerging markets remained broadly firm, with Latin America leading global performance thanks to compelling valuations and strong sector earnings.

Fixed Income

U.S. Treasuries saw long-end weakness with the 10-year yield rising back toward 4.1 percent as investors positioned ahead of the Fed meeting. Short-term yields eased slightly, steepening the curve.

Europe experienced a sharp rise in long-dated yields. German Bunds climbed to 2.79 percent, marking their largest weekly jump since the summer. Italy’s 10-year yield moved lower, narrowing the Italy–Germany spread to a 16-year low and reflecting improved fiscal confidence.

In Asia, Japanese Government Bonds sold off aggressively. The 10-year JGB surged to 1.93 percent, its highest level since 2007, following hawkish comments from the BoJ. Other Asian yields remained broadly stable due to benign inflation and expectations of Fed easing.

Emerging market bonds saw tightening spreads and lower local yields, supported by receding inflation and growing expectations of policy easing across EM.

Commodities

Oil prices stabilised, with WTI holding near 59 dollars and Brent above 63 dollars after OPEC+ maintained output discipline. Geopolitical risks provided a modest upside floor.

Gold approached 4,212 dollars per ounce following a 1 percent rally on a weaker dollar and expectations of Fed easing. Silver remained the standout performer, touching a record high near 59.3 dollars.

Industrial metals held steady while agricultural commodities saw little volatility, supporting stable import costs across Asia and EM.

Currencies

The U.S. dollar weakened broadly. The DXY fell 0.5 percent as the market priced in a December Fed cut with more than 90 percent probability.

The euro hovered around 1.164 while sterling climbed toward 1.34 on improved inflation dynamics. The Japanese yen was the standout performer, strengthening into the 154 per USD range on rising Japanese yields and increased expectations of a BoJ rate hike.

Emerging market currencies extended their rally. The Brazilian real traded near 4.80 per USD, and the Mexican peso held firm as investors continued exploiting carry opportunities in a softer-dollar environment.

Crypto

Crypto markets recovered strongly. Bitcoin rebounded to the 93,000–94,000 dollar range mid-week before consolidating near 89,700 dollars as short-term traders took profit. The Fed’s decision to end QT on 1 December improved liquidity expectations and lifted sentiment across digital assets.

Real Estate

U.S. mortgage rates fell to 6.19 percent, the lowest in more than a year, supporting a recovery in pending home sales and easing affordability pressures. Commercial real estate stabilised but remains uneven.

UK house prices rose 0.3 percent in November, surprising to the upside. Mortgage approvals held steady, reflecting resilient underlying demand despite elevated rates.

Asia remained split: Japan’s real estate market stayed stable despite rising yields, while China’s property sector continued to drag on broader economic activity.

📅 Key Events Next Week

Mon 8 Dec: Global Services PMIs Weak data may weigh on cyclicals; strong data could reinforce the recovery narrative.
Tue 9 Dec: RBA Rate Decision A pause would support AUD; a hike may pressure Asia-Pacific equities.
Wed 10 Dec: U.S. CPI (Nov) Soft inflation would lock in the expected Fed cut; a surprise spike may delay easing.
Thu 11 Dec: ECB Meeting No policy change expected, but guidance will be key for euro momentum.
Fri 12 Dec: U.S. Consumer Sentiment (Dec) Strong sentiment could support equities and EM FX.

💡 Investment Idea: Selling EUR/JPY as Yield Dynamics Reverse

For nearly two years, EUR/JPY has been one of the cleanest reflections of the global carry trade: the euro supported by relatively high European yields and the yen suppressed by the Bank of Japan’s ultra-loose stance. That cycle is now turning — and the shift is visible across both price action and policy dynamics.

A Historic Policy Shift in Japan

Japan is entering the most significant tightening phase in almost two decades:

The 10-year JGB yield surged from 1.82% to 1.93%, its highest level since 2007.
Markets now expect a December BoJ rate hike.
The yen strengthened to 154 per USD, its firmest level in about a month.

Rising Japanese yields increase the cost of funding JPY shorts — a direct pressure on EUR/JPY.

Eurozone Losing Momentum

Meanwhile, Europe offers a much weaker support base:

Germany’s 10-year Bund jumped to 2.79% — not due to domestic strength, but due to global yield pressure.
Eurozone inflation remains moderate at 2.2%, reducing the likelihood of further ECB tightening.
Markets increasingly expect ECB easing in 2026, eroding the euro’s forward premium.

As yield spreads compress, EUR/JPY loses its structural advantage.

Carry Trade Unwind Risks

With Japan shifting from dovish to hawkish, the multi-year carry trade begins to unwind:

Rising Japanese yields increase funding costs.
A weaker dollar reduces global appetite for carry positions.
Volatility around the BoJ policy triggers early deleveraging.

Historically, similar setups have resulted in rapid 500–700 pip EUR/JPY corrections within weeks.

The Bottom Line

The alignment of technical reversal, policy divergence, yield compression and carry unwind dynamics creates one of the clearest FX opportunities of the quarter. Selling EUR/JPY positions investors early in what could become a major re-pricing as markets adjust to Japan’s tightening cycle and Europe’s softening economic momentum.

Prepared by the Scientia Capital Management Team. This publication is based on verified market data and analysis. The views expressed are for informational purposes only and do not constitute investment advice. Scientia Capital Management combines market expertise with AI-driven intelligence to empower investors worldwide.