How much further will US 10-year yields rise? If a peak is close, the USDJPY pair is set to reverve back lower, in the view of Kit Juckes, Chief Global FX Strategist at Société Générale.

Short GBPJPY is an appealing trade

“In the US, tomorrow’s mid-term elections could gridlock the US Government, and Thursday’s CPI data should be well-behaved at the core level, which probably peaked in September. Maybe there’s enough there to limit how much further US yields rise, even against a backdrop of continued solid employment data. If US yields are close to their highs, then USDJPY probably is too.”

“The BOJ has intervened aggressively (and expensively) on the MOF’s behalf, and it’s easy enough to imagine that if USDJPY shows clear signs of having peaked, the Yen has plenty of room to rally before shorts are all squeezed out or before it could reasonable be called an ‘expensive’ currency.” 

“Shorting the Dollar against the Yen looks like a better trade than going long EURUSD. But maybe short GBPJPY is an even more appealing trade.”