Societe Generale strategists note USD/JPY trading just below 160 as hawkish comments from BoJ Governor Ueda fail to support the Japanese Yen (JPY). They highlight a sharp rebound in the 2-year UST/JGB spread and warn that a break higher in yields could extend Dollar strength. Massive option expiries around key strikes may temporarily anchor USD/JPY price action.

Yen weighed by wider rate spreads

"On any other day the hawkish signalling by BoJ governor Ueda may have helped the Yen to catch a break at 160/USD, but not this time."

"The 2y UST/JGB spread has reversed 50% of the drop since Jun-25 (333bp to 212bp). A break of 270bp opens 281/285bp."

"The Yen is cheap from a valuation and fundamental perspective but with monetary policy only just skirting the bottom end of the neutral range at 1% (if the BoJ hikes this month), the central bank and MoF face a quasi-impossible task to turn the trend if Kevin Warsh nods to market pricing on the 17th. The $74bn of dollar sales between 28 April and 27 May by the BoJ has literally been water off the duck’s back. "

"The short JPY base has expanded to 26% from OI [Open Interest] compared to a net long position before the Iran conflict. Massive option expiries around 159.00-90 ($11.4bn), 160.00 ($3bn) and 160.01-80 ($2.8bn) today may anchor price action in the near term."

"Beware of a bullish breakout if Treasuries are spooked by payrolls."

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