MUFG highlights the JPY as the best-performing G10 currency in 2025, driven by narrowing yield differentials and stronger-than-expected Japanese GDP growth. They maintain a short EUR/JPY position, targeting 150.
Key Points:
1️⃣ JPY is the Best-Performing G10 Currency in 2025
- JPY has strengthened by 4.8% vs. USD and 4.0% vs. EUR YTD.
- USD/JPY has fallen below 150.00, approaching key support levels.
2️⃣ Yield Differentials Continue to Narrow
- The 10-year UST-JGB spread has tightened by ~50bps, falling to its lowest since before the US election.
- JGB yields surged to 1.45%, more than doubling in the past year, reflecting growing BoJ policy normalization expectations.
3️⃣ Stronger Japanese Growth & Wage Pressures Support BoJ Hikes
- Q4 GDP grew by 2.8% Q/Q, following 1.7% Q3 growth, indicating economic resilience despite BoJ rate hikes.
- BoJ sees sustained wage growth, with full-time base pay rising 3.0%—consistent with the 2% inflation target.
- Upcoming wage negotiations (Shunto) on March 14 will be key for BoJ policy direction.
4️⃣ Staying Short EUR/JPY, Targeting 150
- BoJ’s continued hawkish tilt and yield spread compression should drive further JPY strength vs. EUR.
- MUFG maintains its short EUR/JPY trade, expecting a decline towards 150.
Conclusion:
MUFG remains bearish on EUR/JPY, expecting JPY strength to persist due to tightening yield differentials, solid economic growth, and stronger wage pressures. They maintain a short EUR/JPY position, targeting 150 (spot at 157.00).
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