It was one-way traffic for the Japanese yen in the back end of the second quarter. The currency depreciated sharply against a range of other majors, with the US dollar touching a 7-month high, the Australian dollar hovering around the top end of its 9-month range, and the euro hitting its highest level since the third quarter of 2008.

Markets were clearly underwhelmed by the lack of action at the late-April Bank of Japan meeting, the first for newly-appointed Governor Ueda. Over the same period interest rate expectations for other major central banks like the Reserve Bank of Australia, Bank of England, and Federal Reserve have risen, to differing degrees, due to persistent inflation pressures, and this has seen yield differentials tilt in an unfavourable direction. However, we think things may have moved too far. Given where the yen is now trading, we think the distribution of medium-term outcomes has become increasingly uneven. Put simply, we see more upside than downside risks from here.