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

Societe Generale strategists note the Japanese Yen (JPY) remains the main G10 laggard despite higher domestic yields and Bank of Japan (BoJ) tightening. With the 10-year JGB potentially rising toward 3.50% as further 75bp of BoJ hikes are expected, FX markets still show limited enthusiasm for the Yen, while USD/JPY trades above the 200-day moving average and near the 159 level.

Higher JGB yields not supporting JPY

"A quiet session overnight cemented the position of the JPY as the main laggard in G10 ten days into August, a vastly different trajectory compared to this time in 2024, when following unilateral dollar sales by Japan’s MoF, the currency was head and shoulders above the rest of G10 and scoring a 3% gain vs the dollar."

"With another 75bp of tightening potentially to come by the BoJ by this time next year according to SG economists, we’re looking realistically at a 10y yield of around 3.50%, above the Bund."

"The prospect of a positive premium for 10y Japanese over German yields is not sufficient however not to convince the FX markets of the attractiveness of the Yen."

"EUR/JPY trades within 2.3% of all-time highs after clawing back 2.4% from the coordinated intervention low two weeks ago."

"USD/JPY recovered above the 200dma and is back above 159 handle on dip buying."