FX Update: JPY drop extends despite yield consolidation. FX Update: JPY drop extends despite yield consolidation. FX Update: JPY drop extends despite yield consolidation.

FX Update: JPY drop extends despite yield consolidation.

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  Global bond yields, and especially US treasury yields, consolidated lower yesterday and yet the JPY weakening move that has been nominally coincident (inversely) with the direction in global bond yields kept ride on trucking. This suggests that aggressive speculative flows in JPY are behind at least some of the move. And it is worth noting that the CNHJPY exchange rate is pushing at the range highs that stretch back several years and have twice signaled major shifts in the CNH.

FX Trading focus: JPY drop extends despite consolidation in global bond yields

The Japanese yen weakening move continued apace overnight in the wake of an upward Q1 GDP revision and a solid uptick in the May Eco Watchers Survey. The aggressive extension lower in the currency looks slightly odd, given that global bond yields, and especially US Treasury yields, saw a solid consolidation lower yesterday. Looking at the origins of this latest leg lower in the JPY, the move in USDJPY began on May 31, the day when US long treasury yields halted their slide lower and lifted off from their consolidation lows as well. But a good friend and far-more-clever market observer than I argues that the move makes sense in light of a shift in the wording on that very day of a new fiscal draft away from a commitment to balancing the budget by 2025. This did merely make explicit something that was widely considered unlikely anyway, and other countries are hardly likely to get their fiscal houses in order before the next recession strikes (presumably well before 2025), but it is an FX negative, together with other recent signs the PM Kishida has few qualms with the current BoJ policy mix and is therefore more likely to nominate someone like him when Kuroda’s term expires next year.

But the aggressive move lower in the JPY also has a clear speculative element, as is visible in rather stretched speculative US futures positioning and indications that “Mrs. Watanabe” is enjoying the strong carry trade as the JPY weakens, going long other currencies like the AUD and especially BRL in recent months. This speculative element and the Japanese external capital flows focus driving a good portion of the JPY weakness (as has so often been the case in the past) is covered very well in a column from Bloomberg’s John Authers today. The question is how late in the game we are here – is this the beginning or middle of a climax phase or do we have months to run? It is hard to tell, the higher yields go and the lower the JPY goes, the more explosive the blowback when and if either the BoJ is forced off the YCC commitment, or the speculative bubble plays itself out.


Interesting to watch the JPY move in isolation, but also the CNHJPY exchange rate in coming days as it is interesting to note that China chose to allow its currency to weaken just as the CNHJPY cross was poking at the 20.00 level for the first time since 2015, which was near the time frame in which China chose to dramatically rework its foreign exchange policy. If the USDJPY rate continues higher, we should expect a renewed bout of volatility in the USDCNH rate as well.

Source: Saxo Group

The low-yielder theme is also prominent in EURCHF today as EURCHF challenges above its 200-day moving average, which it has generally traded below since July of last year. We’re seeing new highs in EU yields and pricing of the ECB heading into tomorrow’s ECB meeting (previewed in yesterday’s update) after an upgrade of the Q1 GDP estimate to 0.6% QoQ from 0.3% originally.

Sterling was sharply strong yesterday after the gyrations before and after the Boris Johnson leadership vote, with the strength likely stemming from the rebound in risk sentiment yesterday together with promises of tax cuts for companies from Chancellor Sunak in the fall budget statement, but these latter sources of support are eroding fast today and still looking for the potential for a EURGBP break higher post ECB if Lagarde and company can support the repricing of the forward yield curve for the euro. Watch the 0.8600 area post-ECB tomorrow.

The Turkish lira has been in for an ugly drubbing in recent weeks, with the deterioration picking up sharply today in the wake of fresh comments from Turkish president Erdogan, who has been out talking up interest rate cuts as the needed medicine for reducing inflation. This after the country posted a year-on-year inflation rate of 73.5% in May (although month-on-month it was 3.0% vs. 4% expected) After a tenuous period of stability when USDTRY traded below 15.00 from early March until early May, the currency has now moved over 12% lower in carry adjusted terms since early May versus the US dollar. At the same time, President Erdogan is complicating Sweden and Finland’s application to join NATO with claims that Sweden must stop supporting “terrorism”, with a single deciding vote in the Swedish parliament holding the Swedish government together an ethnic Kurd and former Peshmerga fighter. You can’t make it up.

Table: FX Board of G10 and CNH trend evolution and strength.
The pressure on the JPY continues to mount, with some fresh downside in the CHF as well. As noted above, curious to see if CNH responds to the JPY situation soon. Elsewhere, CAD is riding high on oil and Euro is in a holding pattern – let’s see what the ECB can deliver.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Watching USDCNH as a derivative of the CNHJPY and USDJPY situation and after the recent USDCNH new lows were rejected. USDCHF has also crossed back to positive.

Source: Bloomberg and Saxo Group

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.