Synopsis:

Nomura expects USD/JPY to stay in the 140–145 range in the near term but sees a high likelihood of a break below 140 as bond market stability improves and BOJ policy dynamics shift. The June 20 MoF meeting on long-term JGB issuance could be pivotal in calming bond market concerns and setting the stage for a gradual USD/JPY decline.

Key Points:

• Near-term range with bearish bias:
  USD/JPY is expected to remain between 140 and 145 in the short term, but Nomura sees a strong chance of a break below 140 later, especially as global bond volatility stabilizes.

• Focus on Japan’s JGB issuance strategy:
  The Japanese Ministry of Finance (MoF) will meet with primary dealers on June 20 to discuss the maturity profile of FY25 JGB issuance. A shift toward shorter maturities could ease super-long JGB volatility.

• Bond market stability = improved risk sentiment:
  Both Japanese and US efforts to address long-duration bond market instability are likely to boost risk sentiment, supporting the yen in the short term and making USD upside less sustainable.

• Limited long-term FX impact from bond yields:
  While JGB market calm may support USD/JPY stability for now, "de-dollarization" and macro dynamics continue to point to downside risks for USD/JPY over the medium term.

• Implications for BOJ policy:
  If bond market stability persists, the BoJ may become less dovish, reducing support for USD/JPY and reinforcing the medium-term bearish case.

Conclusion:

Nomura maintains a cautious near-term view with a 140–145 range, but sees the balance of risks tilting toward USD/JPY breaking below 140. Any rebound in the pair is expected to be short-lived, as longer-term structural forces—including possible BoJ normalization and reduced bond market stress—continue to favor yen strength.