USD/JPY continues to track yield differentials faithfully - SocGen

Kit Juckes, Research Analyst at Societe Generale, explains that at the top of the list of frustrating currency pairs is USD/JPY, which continues to track yield differentials faithfully.

Key Quotes

“The inability of JGB yields to decouple from US ones is the Achilles Heel of the BOJ’s yield-anchoring policy, and we’re in the vicious cycle where a stronger yen weighs on inflation expectations, magnifying the relative real yield move. But, for all that, if we believe US yields are set to recover, and that episodes of risk aversion are going to come and go like rain showers and not stick around like the monsoon, USD/JPY is a buy once US yields find a base. The BOJ will keep easy monetary policy in place for longer than US yields can go on falling.”