Societe Generale said the Japanese yen is undervalued against the US dollar on a purchasing power parity basis. It put fair value for USD/JPY near 95, well below current levels.
The bank reported that the yen is still used for carry trades because of interest rate gaps with other central banks. It added that this positioning could be fragile if the exchange rate moves lower.
Yen Valuation And Positioning Risks
It noted that the last two moves in USD/JPY towards 160 were met with foreign exchange intervention, which only had a short-lived effect. It also referred to a rising Nikkei alongside existing short-yen positions.
Societe Generale said the Bank of Japan and Japan’s Ministry of Finance could steer USD/JPY down. It described a possible move towards 150, rather than 140 seen in earlier pullbacks.
The article stated it was produced using an AI tool and reviewed by an editor.
We see the Japanese Yen as deeply undervalued, with its fair value based on purchasing power sitting closer to 95 against the dollar. With the pair currently trading around 158.50, holding short-yen positions becomes increasingly risky. This valuation gap suggests a significant correction could be on the horizon.
Potential Path For Usd Jpy
The appeal of shorting the yen has been its role in the carry trade, fueled by the wide interest rate gap between the Federal Reserve’s 5.50% and the Bank of Japan’s 0.1%. However, recent data shows speculative net-short positions on the yen are at multi-year highs, indicating the trade is very crowded. Complacent positioning like this is fragile and prone to a rapid unwind.
Signs of a strengthening Japanese economy, such as the Nikkei 225 trading above 42,000, could challenge the weak-yen narrative. The latest core inflation data for April 2026 came in at 2.2%, remaining above the central bank’s target and adding pressure for policy normalization. These factors give authorities more reason to favor a stronger currency.
We have seen authorities repel moves towards the 160 level with intervention before, as they did back in the spring of 2024, even if those effects were short-lived. This time, there’s a growing belief that the Ministry of Finance and Bank of Japan might guide the pair lower. The target for such a managed decline appears to be 150, a less aggressive level than the 140 seen in previous corrections.
Given this outlook, traders should consider protective strategies against a drop in USD/JPY. Buying put options with strike prices around 155 or 152.50 expiring in the next one to two months could prove effective. A bear put spread might also be a cost-efficient way to target a move specifically down to the 150 level.
