The USD/JPY has plunged below its previous lows since November 2014. The next major support is the levels preceding the Oct-2014 BoJ QQE phase two policy easing (USD/JPY around 110). The fall comes despite the short term yield advantage for the USD/JPY rising to its widest margin in many years. The key driver is higher global market uncertainty sharply reducing yield-seeking behavior. The effectiveness of unconventional QE/negative rate policies appears to have sharply diminished over the last year. We may even be witnessing the undesirable unintended consequences of prolonged global QE coming home to roost and dampening market confidence. Nevertheless it is hard to see any other path for the BoJ and ECB, suggesting both may opt for more negative rates and play the intervention card if currencies strength persist. We note that in the most recent bout of global market uncertainty this year, intensifying since the BoJ opted for negative rates on 29-Jan, JPY has not strengthened more than gold.
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