The USD/JPY has been correlated with the difference in 5Y rates between the US and Japan since 2021. The pair should trade in the range of 131-136 if US 5Y yield moves in the range of 3.0-3.5%, economists at Société Générale report.

Deterioration of Japan’s current account balance will lead to additional yen depreciation

“If US 5Y yield moves in the range of 3.0-3.5% in the future, USD/JPY would move in the range of 131-136 yen. However, since June, USD/JPY has been higher than the fair value calculated by the difference in 5Y rates.” 

“There is a possibility that the deterioration of Japan’s current account balance will lead to additional yen depreciation.”