Throughout the beginning of this year, the Japanese yen has experienced a significant depreciation against the U.S. dollar, reaching its lowest point in 18 months on Wednesday. However, there is emerging skepticism from analysts at Societe Generale regarding whether this drop represents the final phase of the yen’s decline.
At 10:30 a.m. Eastern Time (15:30 GMT), the USD/JPY currency pair was trading down by 0.5%, valued at ¥158.36. This reflects a pullback from an earlier session peak that saw the yen trading over a one-year high at ¥159.45.
The downward pressure on the yen has been driven largely by fears related to anticipated loosening in both fiscal and monetary policy. Specifically, speculation that Prime Minister Sanae Takaichi may call an early snap election has heightened uncertainty, as such a move could postpone parliamentary approval for a bill that enables the government to issue bonds to cover fiscal deficits.
In the year 2024, the futures market had accumulated a substantial net short position against the Japanese yen, which correlated with a USD/JPY rate surging above ¥160, noted Kit Juckes, Societe Generale’s chief foreign exchange strategist. He explained that recent movements have effectively reversed the yen’s previously robust positioning from early 2025, with USD/JPY oscillating between ¥140 and ¥159.
Juckes cautioned that confidently claiming a peak in 30-year Japanese Government Bond yields or the USD/JPY exchange rate would require considerable boldness. Despite the administration potentially securing a majority in the lower house, the Societe Generale team asserted that significant fiscal expansion is unlikely in the short term due to concerns over debt sustainability.
Additionally, the scarcity of near-term issuance in longer-dated bonds, combined with a political strategy focused on winning seats in the Upper House for the Liberal Democratic Party, supports a potential ‘buy the dip’ approach for long-dated Japanese Government Bonds (JGBs). This view may extend similarly to the Japanese yen, with Juckes indicating that any impending spike in USD/JPY could present an opportunity for short-selling the pair.