USD/JPY: Waiting for the next shoe to drop – SocGen

The Bank of Japan could dither, but policy normalisation is coming, and the Yen is still badly undervalued, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

USD/JPY may remain bumpy

“We expect the BoJ to raise the top of its 10-year JGB range by 50 bps to 1% at the June 16 meeting, and that alone could see USD/JPY close to 130.”

“USD/JPY may remain bumpy, and market participants may continue to trade options than spot (as they clearly do today). But we remain confident that we’ve seen the peak in longer-dated Treasury yields, the Treasury-JGB spread, and USD/JPY.” 

“It also seems that Japan’s inflation is doing good things for the equity market, which can in turn suck in foreign capital and that provides some support for the Yen, as well as an additional nudge to the BoJ to stop dithering.”