📝Yen May Drop to 140/USD On Wider Rate Differentials: NAB FX Strategy

The Japanese yen may drop to the key level of 140 to the dollar as interest rate differentials widen, this could push the Bank of Japan to revise its YCC policy. To the extent dollar-yen has been doing ‘what it should’ in relation to US-Japan yield spreads, then if the latter widen further, it’s reasonable to expect a test of 140 yen. We don’t think the BOJ and the Ministry of Finance will be happy to see us moving north of 140 yen on a sustained basis. But rather than expect currency intervention, more likely in our view is a tweak to the yield-curve control policy, which widens the tolerance band around zero. - NAB FX Strategy