Jens Pedersen, Senior Analyst at Danske Bank, sees current market conditions as a potential challenge for both the ECB and BoJ mandates. Key Quotes “Yellen’s speech yesterday provided only a short-lived relief in risk appetite and both the EUR and JPY gained versus the USD last night. In particular USD/JPY took a steep dive and dropped below 113 overnight to the lowest level seen since October 2014 when the Bank of Japan (BoJ) surprised the market and eased monetary policy”. “As such, both the JPY and EUR are likely to remain supported by safe-haven demands as long as market jitters continue”. “However, the recent strengthening of the two currencies is a concern for both the ECB and the BoJ. Especially, the BoJ’s credibility and willingness to weaken the JPY is being tested at the moment”. “First line of defense from the BoJ is normally verbal intervention but it has been unusually quiet over the past week. This could either be a sign of fatigue or that something big is coming up”. “We do not think the BoJ is about to abandon its policy and we therefore expect it to react sooner rather than later. Question is what the BoJ can do at this stage”. “Further negative interest rates and more QE are both likely, in our view but there has also been some speculation about currency intervention in the news media”. For more information, read our latest forex news.