With the Japanese yen still doggedly in its weakening rut, attention is now turning to when the trend will turn.

John Hardy, head of FX Strategy at Saxo Bank, says that JPY weakening is becoming overdone and that a key test of this proposition will be Wednesday’s Federal Open Market Committee (FOMC) meeting. The Japanese currency’s downward path could extend a little further, Mr Hardy says, should the FOMC fail to suggest that it is going to do anything differently and bonds continue to sell off.

“I think there’s a lot of complacency in the market. Therefore if the FOMC does something that suggests that perhaps it is worried about the unintended consequences of its easing that could see risk aversion return or risk appetite fade,” he added. Should this happen, EURJPY would be the biggest mover with USDJPY rather less vigorous.

The current JPY trend will likely consolidate sharply at some point - the question being whether this happens in the near term with the FOMC meeting or a bit later down the road.

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