[MARKET ANALYSIS] Yields soar to the benefit of DXY, whilst JPY lags post BoJ SOO and data

• Snapshot: A dire situation, with global yields at multi-decade highs, lifting the USD to levels not seen since May 2025. The CHF benefits post-CPI and haven-demand, whilst the JPY underperformed post-Tankan survey.
• DXY is stronger this morning, and currently trades at the top end of a 101.45-101.83 range; the peak for the day has surpassed the 24 June high (101.80), and now trades at levels not seen since May 2025. The strength today is facilitated by stronger energy prices, with yields also moving higher in tandem. There is no one clear driver for the energy move this morning, but perhaps as traders digest the lack of progress between US-Iran; A US official said Secretary of State Rubio demanded that Iran’s UN delegation immediately leave the US after negotiations stalled.
• EUR is weaker vs USD this morning, and fell below the 1.13 mark for the first time since May 2025. The single currency has been swept away by the broader USD strength, but also has its own domestic issues to worry about, namely in France. PM Lecornu reportedly aims for EUR 43bln in new savings in the budget, with tax changes likely to make up the rest of the expected EUR 54bln savings plan that was previously touted. Most pertinently is that the deficit is seen falling to 5% of GDP by 2027, well above the EU’s deficit-to-GDP ceiling of 3%. This raises three key concerns: a) Will the EU impose fines/sanctions, b) potential use of Article 49.3 – raising political uncertainty, c) French sovereign debt credit rating downgrades.
• JPY is the clear underperformer this morning, following a weaker-than-expected Tankan report. Mizuho previously noted that a strong reading could boost the odds of an October rate hike at the BoJ; today’s weak reading has likely kicked the can down the road, at least for now. Also for the JPY was the release of the BoJ SOO, which “appears to have disappointed some market participants who were looking for a stronger signal that the BoJ were open to another hike as soon as next month”, MUFG says. 

Sessions where global yields and the dollar move in tandem tend to reflect a rates-led rather than risk-led bid for the USD, and the transmission here is explicit: higher energy prices on stalled US-Iran diplomacy feeding inflation expectations and nominal yields, with the interest-rate differential doing the work on DXY. The distinction that matters within the G10 is between currencies with a domestic counterweight and those without: CHF is drawing haven flow and has its own inflation print behind it, EUR is being hit by an idiosyncratic fiscal story on top of the dollar move, and JPY is the clean loser because the soft Tankan and a non-committal BoJ summary of opinions remove the near-term hike that was the yen's only offset to widening differentials. Episodes of this kind have historically persisted while the yield driver is intact and unwound quickly when it fades, so the durability of the energy and rates leg is the operative variable. On France, the sequence in past deficit standoffs has run through commission scrutiny, parliamentary arithmetic around forced-passage mechanisms, and rating agency calendars, with the OAT-Bund spread the tell rather than the headline fiscal numbers. For the yen the calendar point is the gap between summary-of-opinions signalling and the next policy meeting, where positioning has repeatedly been caught leaning for earlier normalisation than the bank delivers. As a session recap rather than fresh news, the informational content is in the relative performance ranking and its stated drivers, not in any single print.