I can confirm this problem with version 1.3.4 build 5067 . I tried in both Windows and Linux, and in both cases, the default template "{filename}.{fileext} would try to save my undistorted Sony a6000 jpegs (filenames contain capital JPG extension) with a capital JPG. The error was "can't save image" and this error occurs on new project, and projects that I had previously exported undistorted images for.
The solution, as the OP has posted, was to change .{fileext} to .jpg (with jpg in lower case). It seems at the moment that Photoscan is not able to save the images if the original filenames have a capital JPG extension, when the default undistort template is used.