The USD/JPY currency pair is experiencing a fascinating upward trajectory, and Societe Generale analysts have some intriguing insights to share. This rebound from a multi-month ascending trend line at 155.50/155.00 is a notable development, with the pair now challenging the April high. The analysts predict a brief pullback, but the support at 159.20 could be a crucial layer, potentially leading to a persistent uptrend. The next projections are set at 161.20 and the peak of 2024 at 162, indicating a gradual ascent. This upward momentum is further fueled by the widening 2-year UST/JGB spread above 270bp, despite the potential for Bank of Japan (BoJ) tightening.
The BoJ's rate hike, expected to reach 1.0% next week, might not be enough to cap the rally. The analysts highlight a currency battle the BoJ faces, as the market anticipates higher Fed funds rates. This dynamic could impact the BoJ's ability to control the currency's trajectory. Additionally, the recent surge in 2-year UST/JGB above 270bp, following the Non-Farm Payroll (NFP) data, has kept USD/JPY on an upward path. The central bank and Ministry of Finance (MoF) may need to intervene, but the cost and effectiveness of such actions are questionable, given the recent dollar sales.
The analysts also mention the significant purchase of foreign bonds by pension fund proxies, totaling ¥3.16tn ($19.7bn) in May, and the revised first-quarter GDP down to 1.8% annually. These economic indicators add complexity to the currency market dynamics. The article's creation with AI assistance and subsequent editorial review is an interesting aspect, showcasing the evolving role of technology in financial analysis. This commentary provides a unique perspective on the USD/JPY's journey, offering insights into the interplay of economic factors and market expectations.
