The main driver behind the Yen recovery has been speculation that the Bank of Japan may start hiking the policy rate in March. We saw this as well at the end of last year and then the market was disappointed as the BoJ did not start its hiking cycle. Even though it may start this month, the communication and/or the pace of rate hikes may disappoint.

Despite this, we expect the Yen recovery to continue. Likely, the narrowing of the spreads between the US and Japan and the Eurozone and Japan (even though most of it is already anticipated) lead to lower levels in USD/JPY and EUR/JPY. 

A diverging path in monetary policy (BoJ hiking and Fed/ECB cutting) is supportive for the Yen. But it is important to keep in mind that most action will be from the front of the ECB and the Fed. Indeed, we expect only a very gradual hiking path by the BoJ.