The Japanese yen has remained under pressure for much of the new year, sliding to an 18-month low against the U.S. dollar earlier this week. However, analysts at Societe Generale are questioning whether this move could mark the final phase of the yen’s broader decline.
By 10:30 ET (15:30 GMT), the USD/JPY pair was trading 0.5% lower at ¥158.36, retreating from an intraday peak above ¥159.45, its strongest level in more than a year.
The yen’s weakness has been driven by concerns over looser fiscal and monetary policy in Japan. These fears have intensified amid speculation that Prime Minister Sanae Takaichi may call an early snap election. Such a move could delay parliamentary approval of legislation allowing the government to issue bonds to cover budget deficits.
Looking back to 2024, USD/JPY surged beyond ¥160 as futures markets accumulated a large net short position in the yen, according to Kit Juckes, chief FX strategist at Societe Generale.
He noted that the latest price action has effectively reversed the long yen positions built during the early months of 2025, with USD/JPY moving from around ¥159 down to ¥140 before climbing back toward ¥159.
Juckes cautioned that it remains difficult to be confident that markets have already seen the peak in either 30-year Japanese government bond yields or the USD/JPY exchange rate.
Still, Societe Generale suggested that even with a parliamentary majority, the current administration is unlikely to pursue aggressive fiscal expansion in the near term due to debt sustainability concerns. Combined with limited near-term issuance at the long end of the yield curve and a political focus on regaining LDP seats in the Upper House, this backdrop supports a “buy the dip” approach in long-dated Japanese government bonds.
A similar logic may apply to the currency, Juckes added, arguing that a further short-term spike in USD/JPY could finally present an attractive opportunity to go short the pair.
