USD/JPY is pegged back below 148.00 on higher JGB yields. Economists at Société Générale analyze the pair’s outlook.

Market speculating of March/April exit from negative rates

JGB yields stay higher across the curve, diverging from softer yields in the US and Europe. The increase by 5 bps in 2y yields to 0.72% reflects greater speculation that the central bank could adjust policy in March or April. Our economists are having second thoughts about a policy change this soon and think the bank will not be confident of achieving its 2% price target sustainably and stably. This year's base pay rise is likely to be insufficient to achieve the 2% target. 

Moreover, there is a growing feeling that the rate of increase in service prices has already peaked. Our economists therefore do not expect the BoJ to abolish YCC and negative rates in April, the first meeting of the new fiscal year. This keeps the onus on the US economy and the Fed for downside in USD/JPY to gain traction.