From ANZ's 'FX Insight' piece for the week

In summary:

  • A turn in both the global inflation and growth pulse is becoming an increasing risk, and markets look vulnerable to a surprise on this front.
  • US rates have been the most aggressive in pricing in the reflation trade and if some of this is unwound then USD/JPY looks very vulnerable to further weakness.
  • We recommend selling USD/JPY at 110.55, targeting 106.50. We will reassess above 112.60.

The alert was issued with USD/JPY around 110.55, its popped above now which is a bonus.

More (again, summary)

  • near term some downside risks building for yields
  • Price action in commodity markets is suggesting that we are close to a peak for global headline inflation
  • US rates have most aggressively priced in the rise in inflation
  • JGBs have languished because of yield curve control
  • This has likely consequences for the JPY. The weakness that we have seen in the JPY is almost entirely attributable to the move in US rates.