The Yen carry trade is dying. Before April 2025, the USD/JPY currency pair showed a close correlation with the 10Y rate differential between US and Japanese bonds. This was driven by investors borrowing in Yen to fund higher-yielding US Dollar assets through the carry trade. That relationship broke down after "Liberation Day," when trade war uncertainty triggered a surge in market volatility and forced investors to unwind some of their carry trade positions. Meanwhile, the 10Y Treasury note yield is now trading ~2.0 percentage points above the Japanese 10Y Government Bond Yield, falling -1.0 percentage point since April 2025, near the lowest gap since 2021. Yet, USD/JPY continued to move higher as the US Dollar strengthened against the Yen, despite the narrowing yield gap, breaking away from the interest rate differential that historically drove the pair. In other words, the carry trade is losing its influence, with the Yen no longer driven primarily by rate differentials as investors increasingly price in Japan’s heavy debt burden and rising debt servicing costs. Japan’s rising debt costs are becoming impossible to ignore.