Alpha Report
JPY/USD | 2023–2026

1. Executive Summary

Signal Coverage — JPY/USD

6J Macro Review

2023: The Japanese yen remained under severe pressure through much of 2023, with 6J trading near multi-decade lows as the Bank of Japan maintained its ultra-loose yield curve control (YCC) policy while the Federal Reserve continued its aggressive tightening cycle, widening the rate differential sharply against the yen. Geopolitically, Japan's deepening security alignment with the United States and NATO partners, accelerated by Russia's ongoing war in Ukraine and rising tensions in the Taiwan Strait, added a layer of structural demand for dollar assets, further weighing on the yen. By late 2023, the BOJ made incremental adjustments to its YCC band, sparking debate among analysts about whether a genuine policy inflection was approaching, though most stopped short of calling a full regime change; the yen remained at historically extreme undervaluation levels by most purchasing power parity measures.

2024: 2024 marked a pivotal inflection point for 6J, as the Bank of Japan formally exited negative interest rate policy in March and subsequently raised its policy rate for the first time in seventeen years, triggering sharp yen appreciation episodes and significant volatility in the futures contract. The unwinding of the yen carry trade (one of the largest in recent memory) became a dominant macro theme, culminating in a dramatic global equity selloff in early August when the yen surged aggressively and forced leveraged positions to cover rapidly. Analysts were divided on whether this constituted a durable regime change: some argued the BOJ's cautious, data-dependent tightening path and Japan's still-wide rate differential with the U.S. meant the structural yen weakness was not yet fully reversed, while others pointed to the carry trade unwind as evidence that the multi-year bearish yen trend was breaking down; the asset moved away from its most extreme lows but remained historically cheap in real effective exchange rate terms.

2025: Entering 2025, 6J continued to reflect a tug-of-war between a gradually normalizing Bank of Japan (which delivered additional, measured rate increases as domestic inflation proved stickier than expected) and a Federal Reserve that began easing but did so more cautiously than markets had initially anticipated. While narrowing interest-rate differentials provided intermittent support for the yen, uncertainty surrounding the pace of both central banks' policy paths kept currency markets highly sensitive to incoming inflation and labor market data. Political developments also gained importance, with renewed discussions over U.S. trade policy following the change in administration and concerns about tariffs contributing to periods of safe-haven demand for the yen. Analysts remained divided on the longer-term outlook: some viewed the BOJ's normalization as the beginning of a multi-year structural appreciation cycle, while others argued that Japan's still-low nominal yields and persistent capital outflows would continue to limit sustained yen strength. Overall, 2025 was characterized by a gradual transition away from the extreme policy divergence that had defined previous years, producing a more balanced but still trend-driven environment for yen futures.

2026 (YTD through Q2): The first half of 2026 has been marked by a more uncertain macro backdrop, with markets reassessing both the pace of Federal Reserve easing and the Bank of Japan's willingness to continue tightening amid signs of moderating domestic growth. The sharp policy divergence that fueled large directional moves over the previous two years has narrowed considerably, leading to more range-bound trading punctuated by event-driven volatility around inflation releases, central bank meetings, and geopolitical developments. Global investors have also remained focused on trade negotiations, fiscal policy uncertainty in the United States, and slowing global manufacturing activity, all of which have periodically boosted demand for traditional safe-haven assets, including the yen. While some analysts believe further BOJ normalization could eventually support a stronger yen, others argue that the currency has entered a consolidation phase in which relative growth expectations and shifting risk sentiment will play a larger role than monetary policy alone. As a result, 6J has so far traded in a less persistent and more rotational regime than during the strong trends observed throughout much of 2024 and 2025.

Signal Performance Overview

2023: The signal opened the year with consistent directional conviction across the first three quarters, capturing yen volatility as the BOJ's yield curve control policy kept markets on edge, but Q4's sharp reversal (the worst quarterly drawdown of the year at -2.80%) dragged the full-year Sharpe to a modest 0.537 despite a positive annual return. Win rate hovered in the low-to-mid 50s for most of the year, suggesting the strategy was leaning on trade sizing and trend persistence rather than high-frequency accuracy. The -4.06% maximum drawdown for the full year reflects that Q4 stress was not fully recovered, making 2023 a year where risk management mattered more than signal quality.

2024: The signal found its footing in 2024, delivering its strongest risk-adjusted performance to that point with a Sharpe of 2.743 and win rates climbing into the mid-to-upper 60s in Q2 and Q3, periods that coincided with significant yen depreciation and subsequent MOF intervention dynamics that created sustained directional moves the model could exploit. Q3 alone was the standout quarter across the entire backtest period, with a Sharpe of 3.841 and a win rate of 63.29%, indicating the signal was well-aligned with the underlying's momentum regime. Q4 cooled considerably, with a win rate dipping to 50.28% and a subdued Sharpe of 0.878, consistent with the choppy, range-bound yen behavior that followed the volatility peak.

2025: 2025 represents the peak performance year in the backtest, with the annual Sharpe of 2.753 and a return profile that was remarkably consistent across all four quarters: no quarter posted a negative return, and drawdowns were tightly contained, with the worst quarterly MDD of -1.28% occurring in Q3. The elevated win rates throughout, peaking at 63.56% in Q4, suggest the signal was operating in a regime where yen price action was trending cleanly, likely driven by the sustained divergence narrative between Fed and BOJ policy normalization. The low drawdown environment across the year implies the underlying was not generating the kind of whipsaw conditions that typically challenge momentum-based strategies.

2026 (YTD through Q2): Through the first half of 2026, the signal has struggled to maintain the consistency achieved during the previous two years, posting a modest negative return (-0.57%) and a negative Sharpe ratio (-0.46). Although win rates remained relatively healthy (57.34% for the year-to-date and above 56% in both quarters) the strategy was unable to convert that hit rate into positive risk-adjusted performance, suggesting that average winning trades were outweighed by larger or more persistent losing positions. Q1 was broadly flat, while Q2 accounted for the majority of the underperformance, recording the weakest quarterly Sharpe (-1.88) of the validation period despite a respectable 56.24% win rate. Importantly, risk remained well controlled, with the maximum drawdown limited to -1.96%, indicating that the deterioration stemmed primarily from a lack of sustained directional opportunities rather than excessive downside volatility. This behavior is consistent with a more rotational macro environment, where shorter-lived trends and frequent reversals reduce the effectiveness of momentum-based intraday signals.

2. Trading Strategy

In order to produce the metrics below we use the signal in combination with the trading strategy below:

• Leverage: No leverage is applied for this strategy and metrics
• Positions:
  • Entry positions: Every 5 minutes (between 09:45 and 12:00 ET) we decide to take a long, short or no position using 1/27 of our starting portfolio for the day (there are 27 possible openings per day). Each long/short position is then split into 5 parts and executed on each minute for the next 5 minutes following the decision. There is no sizing adjustment.
  • Exit positions: We exit all positions at the end of the day. The exits are split over five minutes (15:55–16:00 ET).
• Costs: 1.3 bp round-turn assumption. Extra exchange/clearing fees not included.
• Contract series & roll: Front-month continuous. Switch at the open T–5 trading days before expiration; stop trading the expiring contract and start trading the next.

For detailed examples, flowcharts, and a full walkthrough of the trading strategy, see Benchmark Trading Strategy.

3. Model Training Data and Timeframe

4. Performance Metrics

Table 1: Quarterly and Annual Metrics

5. Next Steps

Download historical predictions using the Client API and confirm performance in your own test harness.

• Sign-up: Start Free Trial
• API Documentation: https://quantumsignals.ai/documentation

6. Contact

Please reach out with any questions or comments at: info[at]quantumsignals.ai