USD/JPY turned south and declined below 134 after having touched its highest level in two decades at 134.54 on Wednesday. Still, in the view of economists at Commerzbank, the trade “buy USD/JPY” is principally the easiest at present.

Is the market testing the Bank of Japan?

“Attractive yields are available elsewhere, not in Japan. That means one cannot really blame the market if it continues to drive USD/JPY upwards.” 

“But perhaps the BoJ is quite happy about a weaker yen, as Kuroda signals, as it makes Japanese goods cheaper on the world market and imported inflation might finally cause price pressure in Japan to rise so that the BoJ would at least get closer to its inflation target. For that reason, I am not entirely certain whether the market would even be able to test the BoJ.”

“Of course, if the BoJ were to reverse its approach at some point that would constitute an earthquake for the yen. However, as long as it doesn’t move whereas interest rates rise elsewhere the yen remains a ‘sell on rallies’.”