A big yen move to come? - Socgen

Kit Juckes, an economist at Societe Generale, explained that when a spike in Bund yields dragged EUR/USD higher in June/July, the bond sell-off proved temporary but the Euro rally persisted - Here we go again. 

Key Quotes:

"When will the same thing happen to the yen, I wonder?"  

"The correlation between EUR/USD and qw10year real yield differentials collapsed after Mario Draghi's intervention in Sintra in June 23. For a quick take on Mr Draghi's comments, see Claire Jones and Katie Martin's reporting for the FT. Bund yields and the Euro jumped in tandem, but the yield rise reversed when ECB speakers tried to down Mr Draghi's comments. The Euro never really looked back. Are we in for a repeat?

I find it fascinating to watch how rate/FX correlations break down in these circumstances and can't help thinking this is a blueprint for USD/JPY, which is threatening to diverge from yield differentials. Will the BOJ try to calm markets if the yen rallies? I'm sure they will. 

I suspect it's a bit early for a big yen move but currencies can look further into the future and discount policy change. Bond markets, distorted by central bank intervention, can't."