Deutsche Bank - "The chatter from the G7 and G20 meetings appears to allow Japan to maintain its policy of raising inflation expectations through a more aggressive BoJ. Therefore, the policies that have helped yen weakness are still on track. The main area of caution, then, is whether the yen move has been too far, too fast. Indeed, the past 3 months has seen the second largest rally in USD/JPY in history – only 1995 saw a bigger decline. We therefore look at previous instances of rapid rallies in USD/JPY of 10% to determine how USD/JPY has traded after crossing that threshold. We find around 20 distinct phases since 1973. Overlaying the current USD/JPY, we find that USD/JPY is following the path of the strongest past uptrends in USD/JPY. Were USD/JPY to continue to follow this path, then possible 3m, 6m, 12m targets would be 95, 99 and 105. In terms of the macro backdrop of the previous strongest USD/JPY uptrends, a weak current account was behind one of them (1979), while broad-based dollar strength was behind the other two (1982 and 1995). The biggest reversal of a USD/JPY surge was in 1980, which saw a big improvement in the Japanese current account and Japanese intervention to buy the yen. We maintain our bullish USD/JPY stance."
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