Synopsis:

SocGen highlights the decoupling between USD/JPY and Treasury yields, attributing it to a diminished safe-haven premium in US assets. FX moves are now less about growth or policy differentials and more about reassessment of risk and positioning in US exposures.

Key Points:

• The USD/JPY-yield correlation has "collapsed," despite rising US yields.

• This may reflect a revaluation of US Treasuries’ safe-haven status, reducing their attractiveness even as yields rise.

• FX markets are increasingly driven by a broader loss of confidence in US assets, not just rate spreads.

• A key theme is investor overcrowding in US exposures, now perceived as riskier than previously thought.

Conclusion:

FX dynamics, especially in USD/JPY, are shifting from traditional rate-driven models toward flows, positioning, and perceived US asset risk. With global investors deeply overweight US assets, any unwind could continue to weigh on the dollar—regardless of yield direction.