Japanese Yen: Yield outlook fails to lift Yen – Societe Generale

Societe Generale strategists note that the Japanese Yen (JPY) remains the main laggard among the G10 currencies, despite higher domestic yields and the Bank of Japan (BoJ) tightening. Even with the potential for the 10-year JGB to rise toward 3.50%, as further 75 basis points of BoJ hikes are expected, FX markets show limited enthusiasm for the Yen.

USD/JPY is trading above the 200-day moving average and near the 159 level. The Yen's position as the main laggard in G10 has been quiet since the start of August, a stark contrast to its position this time last year, when it outperformed the rest of the G10 currencies. With another 75 basis points of BoJ tightening potentially occurring by next year, Societe Generale economists anticipate a 10-year yield of around 3.50%, which is higher than the Bund.

However, the prospect of a positive premium for 10-year Japanese yields over German yields is not enough to convince FX markets of the Yen's attractiveness. EUR/JPY is trading within 2.3% of all-time highs, after clawing back 2.4% from the coordinated intervention low two weeks ago. Despite this, USD/JPY has recovered above the 200-day moving average and is back above the 159 handle on dip buying.