Societe Generale (SocGen) recently highlighted Japan's extraordinary nominal GDP growth in Q1, which stood at an annualized rate of 8.3%, in stark contrast to the average annualized growth of 0.3% over the last 25 years. The bank suggests that, given this context and the yen's current position, the Bank of Japan (BoJ) might consider adjusting its yield curve control policy in the near future. SocGen also pointed out that there's more room for USD/JPY to fall than to rise.
Moreover, the major story in the financial markets has been the global bond sell-off, triggered by the Bank of Canada's rate hike. The rate hikes by the Reserve Bank of Australia and the Bank of Canada have turned the market's attention towards the likelihood of a subsequent move in rates. As a result, there's an increasing probability of another rate hike by the Federal Reserve this summer.
In contrast, even though the market is still factoring in two 25 basis points hikes by the European Central Bank (ECB), it now predicts the rate differential between the Fed and ECB to widen by autumn. SocGen notes that this presents a challenge for the euro, mainly due to growing concerns regarding Europe's economic outlook. The ECB is expected to either continue tightening its policy long after the Fed concludes its tightening cycle or delay easing after the Fed begins cutting rates
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