USD/JPY: Two scenarios for the Yen, levels around 160 can be imaginable – Commerzbank

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, imagines mainly two scenarios for the Yen.

USD/JPY levels in the area of 160?

One, in which the Bank of Japan (BoJ) will bring its monetary policy onto a moderately restrictive course gradually but still on time. In this scenario, the Yen is likely to appreciate. The current JPY exchange rates should reflect the fact that the BoJ is verbally firmly sticking to its current ultra-expansionary course. 

And one, in which inflation gets out of control, i.e. in which inflation becomes so stubborn that it requires a long period of restrictive monetary policy to break the inflation momentum. So long and restrictive that JGB prices (Japanese government bonds) are affected because the BoJ will cease to support the government's spending so the unsustainability of the fiscal situation will become an issue.

In the first scenario (which is more likely) I expect to see JPY strength. In the second scenario, there is a risk of continued and significant JPY weakness, including USD/JPY levels around 160.