USD/JPY: The Yen's potential is limited – Commerzbank

USD/JPY trades near fresh five-week lows below the 148.00 level. However, Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, does not expect the Japanese Yen (JPY) to continue strengthening. 

Yen unlikely to strengthen too much in the medium to long term

By normalizing monetary policy quickly, the BoJ risks repeating the mistakes of the early 2000s: choking off inflation before it is truly self-sustaining. If I am right, the BoJ's scope for raising interest rates will remain extremely limited.

If wage pressures disappear and inflation loses momentum, rate hikes will soon be a thing of the past. That's why I agree with the market on the current strength of the Yen. This is because I think it correctly prices in the BoJ's most likely reaction. At the same time, however, I think the Yen's potential is limited. Especially in the medium to long term, I do not expect the Yen to strengthen too much. That is because I do not think there is room for a pronounced normalization of interest rates.