The USD/JPY currency pair has been on an upward trajectory, and Societe Generale analysts believe this trend will persist. The pair has rebounded after defending a multi-month ascending trend line around 155.50/155, and is now challenging the April high. This is despite the potential for the Bank of Japan (BoJ) to raise rates, which could typically cap such a rally. What makes this particularly fascinating is the role of the yield spread between 2-year US Treasury and Japanese Government Bonds (UST/JGB). The spread has widened above 270 basis points, and this, in turn, keeps USD/JPY on an upward path. In my opinion, this is a critical factor that many market observers might overlook. The BoJ's potential rate hike is unlikely to be enough to stop the rally, as the market's view is for higher Fed funds rates. This raises a deeper question: how will the BoJ's actions align with the market's expectations, and what will be the implications for the currency battle? The analysts also note that the 2-year UST/JGB spread accelerated above 270 basis points after the Non-Farm Payrolls (NFP) report, which further supports the upward trajectory of USD/JPY. This is an interesting development, as it suggests that the market is responding to economic data, rather than just central bank actions. However, the analysts caution that a brief pullback cannot be ruled out, and the last week's low around 159.20 could be the first layer of support. If this level is defended, the pair may gradually head towards the next projections at 161.20 and the peak of 2024 at 162. From my perspective, this is a critical juncture for the USD/JPY pair, and the market's response to the BoJ's actions will be a key factor in determining the pair's future trajectory. What many people don't realize is that the BoJ's actions are not just about domestic economic policy, but also about the global currency market. The BoJ's rate hike will be a test of the market's confidence in the central bank's ability to manage the currency battle, and the implications could be far-reaching. In conclusion, the USD/JPY pair is on an upward trajectory, and the yield spread between 2-year UST/JGB is a critical factor in this trend. The BoJ's potential rate hike is unlikely to be enough to stop the rally, and the market's response to the central bank's actions will be a key factor in determining the pair's future trajectory. This raises a deeper question: how will the BoJ's actions align with the market's expectations, and what will be the implications for the currency battle?
