From the FX Strategy desk at Credit Agricole CIB

The assumption that a Trump election victory would be viewed as increasing global risks and benefit safe haven currencies such as the yen was quickly dispelled. Instead, the focus has been on yield spreads, and the rise in US rates on the assumption of inflationary policy from the President-elect has supported the greenback (Chart 3). The BoJ is doing its part to let interest rate differentials move in favour of the US as well, recently undertaking its first operation to buy securities under its policy to target the yield curve.

Although the offer in the 1-3 year and 3-5 year ranges resulted in no bonds being bought, it points towards the BoJ attempting to limit moves in front end yields, with 10-year yields back at the zero target threshold for the first time in two months. If curves continue to steepen, led by the US, that would provide further upward momentum to USDJPY.

The question is how much further the risk rally can go. Rising yields could begin to impact sentiment in the equity market, while a Trump White House wouldn't likely be happy with Japan garnering a competitive edge from having a currency that's already undervalued. There're also plenty of global risks on the horizon, particularly with upcoming elections in Europe, to rock sentiment again. As such, we don't expect USDJPY to move materially above the 110 threshold.

*CIBC targets USD/JPY at 110 by the end of Q1 '17.

via eFX

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Ryan has asked the question ... Are we seeing the early signs of a top in USDJPY?