According to SG’s FX team, the USD/JPY could drop to 130 again.
Yen should appreciate when money returns to Japan
If the BoJ adjusts its Yield Curve Control (YCC) range at its June policy meeting as we expect, the USD/JPY could drop to around 130 again as the JGB yield rises.
Moreover, as a rule, the unwinding of foreign assets is bullish for the Yen. Net inflows into long-term bonds typically fuel Yen appreciation. We also think the USD/JPY could drop to 110 after 2025.
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The USD/JPY currency pair could be significantly affected by the Bank of Japan’s upcoming YCC adjustments, according to a report from SocGen. YCC, which stands for “yield curve control,” is the Bank of Japan’s policy-based framework which sets a target for short-term interest rates.
The YCC adjustments, due to be announced at the end of the month, are expected to have an impact on the USD/JPY exchange rate. According to the report by Societe Generale, the adjustment could cause the USD/JPY pair to drop to levels seen in May 2020, where it reached a low of 130.00.
The report also noted that this could lead to a decrease of 0.88% in the exchange rate, to a range of 129.65 – 130.00. Such a steep drop in the value of the USD/JPY pair would likely have a negative impact on Japan’s exporters, as well as foreign investors in the market.
The report also pointed out that low volatility in global markets, combined with the YCC adjustment, could cause the USD/JPY rate to drop even further. In such a scenario, the USD/JPY rate could potentially drop to 125.00, which could be detrimental to Japan’s exporters and foreign investors, as noted earlier.
Overall, the USD/JPY exchange rate is expected to remain volatile for the foreseeable future, and could potentially drop to 130.00, or lower, depending on the Bank of Japan’s upcoming YCC adjustments. As such, market participants should monitor developments closely and adjust their portfolios accordingly.