US-Japanese yield differentials are wider than they were last October when USD/JPY surged above 150. Kit Juckes, Chief Global FX Strategis at Société Générale, analyzes Yen’s outlook and its implications for the AUD/USD pair.
AUD would be a loser if – when – USD/JPY breaks 150
US-Japanese yield differentials, real or nominal, five or ten years, are wider today than they were when USD/JPY spiked briefly above 150, 11 months ago. Only fear of a policy reaction is holding the Yen here. A break would complicate things, adding downward pressure to the Yuan (which the Chinese authorities are resisting vigorously) and the rest of the Asia/Pacific currencies as well. And if the Japanese start intervening in earnest, that will add to upward pressure on US yields too.
USD/JPY will probably break 150 in October and the next week or so.
Today’s small AUD bounce is unlikely to represent a low. Last October we saw a break below 0.62 shortly after USD/JPY reached 150 and we expect a repeat this year.
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