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The Governor of the Bank of Japan made important comments about the  undesired weakness of the yen. He said that excessive yen strength has already been corrected and that it is hard to see the yen’s real effective rate falling any further.

He also made direct reference to the upcoming US rate hike, and said that this will not weaken the yen too much, as this is already priced in.

He does say that the weak yen has been a plus for Japan’s economy, but it has different effects on different sectors.

Another member, Takehiro Sato, says that it is “desirable for foreign exchange to reflect the real economy” and he mentions both the positive and negative effects of the move.

But what’s next? Here is the view from BNP Paribas:

Here is their view, courtesy of eFXnews:

Earlier this morning BoJ Governor Kuroda provided direct commentary on the JPY in his appearance to parliament, suggesting that its ‘hard to see the yen’s real effective exchange rate falling further’, notes BNP Paribas.

The build-up of short JPY positioning in recent weeks has provided scope for a 1.5% squeeze in USDJPY, but we would note that overall bearish JPY positioning remains light. Our positioning analysis has a score of only -9 (out of -50) for the JPY,” BNPP adds.

This, according to BNPP, coupled with the rise in US yields since the start of June, should prevent USDJPY from slipping back in to its 118-122 range.

As such, we would not view Kuroda’s comment on the exchange rate to be a barrier to further USDJPY gains over the months ahead,” BNPP concludes.

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