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The Yen's Puzzling Surge, Explained in One Morgan Stanley Theory

  • Japan's currency breaches 108 level for first time since 2014
  • Shrinking real-yield gap buoys yen: Morgan Stanley, SocGen
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How Much Rally Is Left in the Yen?

The yen’s surge this week to the strongest since 2014, which has confounded most currency traders and analysts, may be best explained through the prism of the bond market.

Even with the struggles of the world’s third-biggest economy and expressions of concern by Japanese officials, the yen rallied more than 3 percent against the dollar this week, the most since February. The advance may seem even more improbable when considering Japanese government bond yields are negative for many maturities, ostensibly diminishing the allure of the nation’s currency.