Speculation that Prime Minister Takaichi may call a snap election has pushed Japanese government bond yields higher and sent the yen weaker, driving USD/JPY back toward 159. With yen positioning reversing sharply and long-term JGB yields still climbing, markets remain highly volatile, but analysts see a potential opportunity to sell USD/JPY if the latest spike extends, Société Générale's FX analyst Kit Juckes reports.

USD/JPY surges as JPY longs unwind

"For years all an FX strategist needed, to forecast USD/JPY accurately, was to sit next to a brilliant forecaster of Treasury yields. Now it’s harder. This morning’s Japanese news, that PM Takaichi is said to be planning for a snap election, using a surge in popularity to cement the LDP’s grip on the Lower House of the Diet, has sent yields up and weakened the Japanese Yen (GBP)."

"In 2024, when the futures market built up a large net short JPY position, USD/JPY spiked above 160. The latest move has  unwound the long yen position built up in the first few months of 2025, USD/JPY round-tripping from 159, to 140 and back up to 159. You would have to be very brave to be confident that we have seen the peak in either 30year JGB yields or in USD/JPY."

"Even with a majority in the House, the administration is unlikely to pursue aggressive fiscal expansion immediately' given debt sustainability concerns, while the lack of near-term issuance in the long end of the curve combined with a policy focus on regaining LDP seats in the Upper House, make a case for a ‘buy the dip’ strategy in long JGBs. The same is likely true for the yen. A spike in the coming days, may finally be an opportunity to go short USD/JPY."