USD/JPY Test Looms as Bank of Japan Tensions Rise

The US Treasury market is still under pressure due to high real yields and fiscal slippage, but the Bank of Japan's cautious policy has created an opportunity for intervention in the yen.

The Bank of Japan remains exceptionally cautious, with policy still too loose relative to the pressure showing up in the currency. The underlying tension in Japan has not gone away, and long-dated Japanese yields remain elevated at around 4%.

A test of 160 for USD/JPY is important because markets will naturally start asking whether officials step back in and how they choose to do it.