The spread between the US and Japanese 2-year yields exceeded 3% this month, reaching 3.5%, the highest since 2007, although it was only 0.25% at the beginning of last year. Approaching a spread of 3% has not stopped the Fed from tightening, nor the Japanese rhetoric, so it makes sense to tune in to a return to pre-World Financial Crisis norms, i.e., above 4.3% versus 3.2% now, leaving the potential for around a third of the movement that already passed.
If these correlations between the USDJPY and US-JP 2-year yield spreads remain in place, we could see the dollar continue to rise to 150 yen, last seen in 1990 and twice as high as the historic lows of 2011.
Suppose the Japanese monetary authorities and the Ministry of Finance manage to steer the yen through such a devaluation, preserving confidence in the financial system. In that case, this could revive the economy by raising export competitiveness, potentially returning the Land of the Rising Sun to export-oriented status.
