Our rates strategists expect the US 5y yield to fall to 2.66% by this time next year, which would suggest USD/JPY would break below 130 if JGB yields stay at current levels and reach 125 if there were one further small adjustment to the band.

Correlations are there to be broken, but the current level of USD/JPY bears little relation to the performance of the economy, and in real effective terms, the yen is cheaper today relative to the USD than it has been at any point since the 1970s. Bigger mispricing can last longer than we ever used to think, but this one is extraordinary, and once rates start to re-converge, the Yen will surely rally.