Real yields rise in Japan could make it a tough trade
Societe Generale FX Strategy Research argues that as USD/JPY moves are closely-correlated to 10-year real yield differentials, being long EUR/JPY is more attractive as long as Bund yields are rising.
"The biggest threat to USD/JPY bulls is that 10-year real yields continue to climb in Japan - a risk highlighted by the prospect of the BOJ downgrading its inflation forecast at this week's meeting....The story is a bit different in EUR/JPY because German and Japanese inflation expectations are more closely aligned," SocGen clarifies.
"...With solid growth prospects, while talk of ECB tapering is set to persist, that makes long EUR/JPY seem like a more attractive trade than long USD/JPY," SocGen concludes.
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