Key Moments
- Societe Generale’s Kit Juckes reports renewed Yen softness following comments by Prime Minister Takaichi and China’s move to expand export controls on Japanese firms.
- He observes that USD/JPY has moved away from tracking rate and yield differentials, despite a visible short-term link between Yen rates and the currency.
- Juckes argues that stronger Japanese economic growth – rather than Bank of Japan policy shifts – is essential for sustaining any further Yen appreciation.
Political and Geopolitical Pressures Weigh on the Yen
Societe Generale strategist Kit Juckes points out that the Japanese Yen is under renewed pressure, citing both domestic political signals and external geopolitical developments. He notes that the currency is weaker as Prime Minister Takaichi has signaled concern about additional interest rate increases, while China has responded to the Prime Minister’s comments on Taiwan by extending export controls to more Japanese companies.
According to Juckes, these developments have contributed to the current softness in the Yen, reflecting a combination of policy apprehension and retaliatory trade measures.
USD/JPY Moves Away From Traditional Rate Dynamics
Juckes emphasizes that the recent behavior of USD/JPY no longer aligns closely with interest rate or yield differentials, a relationship that has often guided the pair in the past. He highlights that, over a shorter time frame, there is still a clear connection between domestic Yen interest rates and the exchange rate, which in principle would imply that rate hikes should support the currency.
However, he stresses that this relationship is not currently dictating the broader trend in USD/JPY. He remarks that the pair, which had climbed since 2020 as U.S. yields moved higher while Japanese yields stayed constrained, is at present not following either absolute or relative rate movements.
Market Focus Shifts From BoJ Policy to Growth Prospects
Juckes adds that some of the immediate fiscal concerns have diminished, and that the possibility of official intervention has provided the Yen with some backing. Even so, he argues that the finer points of Bank of Japan policy adjustments are not the main driver for the currency at this stage.
Instead, he contends that the crucial factor for the Yen is the trajectory of Japan’s real economic performance. According to Juckes, stronger domestic growth is more important than policy tweaks if the currency is to build on its recent modest gains.
Key Themes at a Glance
| Factor | Juckes’ Assessment |
|---|---|
| Prime Minister Takaichi’s stance on rates | Apprehension toward further hikes contributes to Yen weakness |
| China’s export controls on Japanese firms | Viewed as retaliation for comments about Taiwan, adding pressure on the Yen |
| Rate and yield differentials | Currently decoupled from USD/JPY despite visible short-term correlations |
| Fiscal concerns and intervention risk | Fiscal worries have eased; intervention risk has offered some support to the Yen |
| Primary driver for sustained Yen strength | Stronger Japanese economic growth, rather than Bank of Japan policy changes |
Unchanged Quotes From Kit Juckes
“The yen is weaker this morning, in part because Prime Minister Takaichi has ‘voiced apprehension to more rate hikes’ according to Mainichi and in part, in reaction to China adding further Japanese firms to an export control list as retaliation for the PM’s comments about Taiwan.”
“Rate or yield differentials are currently completely decoupled from USD/JPY, and while the correlation between yen rates and the exchange rate is easy to see (over this short timeline) it suggests that raising rates ought to be yen friendly!”
“USD/JPY, which has risen since 2020 as US yields have risen and Japanese ones have remained anchored, isn’t currently tracking rates, relative or otherwise.”
“Fiscal concerns have eased somewhat, and the threat of intervention has helped the yen, but what the BoJ does or doesn’t do is unimportant.”
“The yen needs stronger Japanese growth, more than anything else, for recent modest gains to continue.”
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