USD/JPY has scope to rally considerably further - SocGen

Research Team at Societe Generale suggests that the yen is expected to trade under pressure as BoJ has capped nominal yields and risk sentiment is holding up as well.

Key Quotes

“The move in relative real yields between Japan and the US represents a clear case for a weaker yen. The risk is for risk sentiment to change, thus the resilience of the risk mood bears watching because it is the key to the yen's continued weakness. A steady move higher in US yields is not expected to trigger a durable deterioration in risk sentiment for a while.”

“In addition, the BoJ’s strategy of capping nominal yields is paying dividends, as any pickup in domestic inflation expectations drives Japanese real yields down. The USD/JPY therefore has scope to rally considerably further. We look for the USD/JPY to reach 120 by September.”