Japanese Yen Fails to Rally on Higher Yields Amid BoJ Tightening
The Japanese Yen (JPY) remains the main laggard among G10 currencies despite higher domestic yields and Bank of Japan (BoJ) tightening. According to Societe Generale strategists, JPY's sluggish performance is unexpected given its strong showing in August 2024.
Back then, the currency had gained 3% against the dollar following unilateral dollar sales by Japan's Ministry of Finance (MoF). However, this time around, the prospect of higher yields, with the 10-year Japanese Government Bond (JGB) potentially rising to 3.50%, is not convincing FX markets of the Yen's attractiveness.
The BoJ is expected to continue tightening, with another 75 basis points of hikes by this time next year, according to SG economists. This would put the 10-year JGB yield above the German Bund yield.