The Japanese yen has remained under pressure throughout the early months of the year, sliding to its weakest level against the U.S. dollar in a year and a half by midweek. Despite this downward trend, Societe Generale economists have expressed skepticism about the continuation of the yen's decline, suggesting that the current trajectory might be approaching its final phase.
At 10:30 ET (15:30 GMT), the USD/JPY currency pair had retreated by approximately 0.5% to trade near ¥158.36, pulling back from an intraday peak that exceeded ¥159, a level not seen for over a year.
This depreciation coincides with market concerns surrounding Japan's loosening fiscal stance and expansive monetary policy. Speculation has increased that Prime Minister Sanae Takaichi may call an early election, potentially postponing parliamentary approval of legislation authorizing the issuance of government bonds to cover deficits.
Kit Juckes, the chief foreign exchange strategist at Societe Generale, noted that during 2024, futures markets had accumulated substantial net short positions against the yen, contributing to the USD/JPY exchange rate surpassing the ¥160 mark. Juckes highlighted that the recent price movements have effectively reversed the long yen positions accrued in the initial months of 2025, with USD/JPY oscillating sharply from about ¥140 to ¥159 and back.
He cautioned, "It would require considerable conviction to assert that we have reached a peak in either the yields on 30-year Japanese government bonds or in the USD/JPY exchange rate."
Societe Generale further noted that even if the administration secures a majority in the House, the government is unlikely to implement aggressive fiscal expansion promptly owing to concerns around debt sustainability. Moreover, the absence of near-term issuance of long-dated government bonds, coupled with a political emphasis on reclaiming seats in the Upper House, suggests a potential strategy of purchasing dips in long-term government bonds might be warranted.
Juckes extrapolated this perspective to the currency markets, suggesting that a rebound in the yen could present an occasion for traders to initiate short positions on USD/JPY in the coming days.