Higher US rates to be another big leg down to JPY in long term

Japan's domestic public sector flows drove the move from 100 to the 120s in 2014. Prior to that, the overseas sector fuelled the move from 80 to 100. 

The sector which is expected to drive the third leg of JPY selling has so far had limited involvement and appears to be largely indifferent to domestic policy, the Japanese private sector, specifically, bond investors. 

Unlike equity flows, the raw bond flows tell us little about the supply/demand balance for the currency as much fixed income investment is currency hedged. Indeed for fixed income investors, shifts in hedging behavior have the potential to generate much bigger FX flows than the cross-border asset movements themselves as they affect the entire stock of existing investment, not just the current flow. 

"As US short rates rise as expected in September, so does the cost of hedging and an unintended consequence of higher US rates is expected to be another big leg down in JPY (target: 132)", says RBC capital markets.