MUFG Research sees scope for further USD/JPY recovery in the near-term.

"The yen has weakened overnight following the BoJ’s latest policy meeting resulting in USD/JPY briefly moving back above the 115.00-level....The BoJ left their monetary policy settings unchanged but now judges that risks to inflation are “balanced” instead of “tilted to the downside”. The BoJ noted that as wage increases give households more purchasing power, a broader range of firms will raise prices," MUFG notes.

The widening divergence between BoJ and Fed policy expectations should continue to place upward pressure on USD/JPY. US yields continued to move sharply higher yesterday with the 2-year UST yield moving above 1.00% and 10-year UST yield above 1.80%....Assuming though that US dollar sentiment improves broadly, some USD/JPY recovery is feasible but this correction could be a sign of the beginning of the end of the trend higher in USD/JPY that began at the start of last year," MUFG adds.

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