USD/JPY: Yield spread keeps pair on upward path – Societe Generale

Societe Generale analysts say USD/JPY has rebounded after defending a multi‑month ascending trend line around 155.50/155.00 and is now challenging the April high. Support is seen at 159.20, with projections at 161.20 and 162. They add that a widening 2‑year UST/JGB spread above 270bp keeps USD/JPY on an upward trajectory despite potential BoJ tightening.

BoJ hike unlikely to cap rally

"USD/JPY defended the multi-month ascending trend line around 155.50/155 resulting in a steady rebound. It is now challenging the April high."

"A brief pullback cannot be ruled out; however, the last week’s low around 159.20 could be first layer of support. Defence of this may lead to persistence in uptrend. The pair may gradually head towards next projections at 161.20 and the peak of 2024 at 162."

"Spot bid above 160, 2y UST/JGB out to 277bp. Support 159.20, resistance 161.20."

"The 2y UST/JGB accelerated above 270bp after NFP, keeping USD/JPY on an upward trajectory. The central bank/MoF must now follow up verbal intervention with action at a high cost and pickings are slim as dollar sales over the past month have demonstrated."

"The BoJ will in all likelihood also raise rates by 25bp to 1.0% next week, the lower end of the neutral range, but is confronted by a currency battle it can’t win if the market view is for higher Fed funds rate."

"Pension fund proxies bought record ¥3.16tn ($19.7bn) foreign bonds in May. 1Q GDP revised down to 1.8% ann."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)