According to Kit Juckes, Research Analyst at Societe Generale, weak US yields are supporting yen at the moment and they expect lower USD/JPY and EUR/JPY peaks in the near-term.
Key Quotes
“In our mid-year forecast update, we identified three threats to our forecast of USD/JPY reaching 115 this month and 120 by year-end. They were that the BoJ joined in the global policy normalisation, that bond yields and interest rates stayed lower for longer than expected, and an outbreak of broader risk aversion, for some reason as yet unknown. The BoJ has maintained its course but won’t forever. The Korea missile crisis has boosted the yen at times, and yields have definitely been lower for longer that most expected. So, two out of three. Of the three, the one that affects our forecasts most is the lower trajectory for US yields. That caps USD/JP by reducing the effectiveness of the BoJ’s yield-suppressing policy.”
“Limited USD/JPY upside. In the longer run, the Japanese economic recovery will see the BoJ change course eventually, in our view. The 10-year JGB yield won’t be around zero forever. As we edge closer to the end of the Fed hiking cycle and closer to a cyclical downturn in US yields, USD/JPY will likely eventually move towards fair value and probably overshoot. But that is still in the future as Japanese inflation remains moribund.”
“Higher global yields remain key. But for now, we think the BoJ can squeeze a little more weakness out of the yen if we’ve seen the bottom of a trading range in US yields. As for the yen’s safe-haven credentials, they won’t go away, but a stronger yen and weaker KRW and TWD make a challenging mix as a reaction to events in North Korea. We don’t think this particular geopolitical challenge will support the yen much if we get back to a world of rising bond yields.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.