The dollar’s recent meltdown suffered at the hands of the Japanese Yen has forced some of its backers to rein in their bullish bets on concerns the Bank of Japan’s hawkish pivot on monetary policy earlier this week could mark the start of a hawkish regime shift.

The 4% plunge in USD/JPY earlier this week claimed its first victim as Goldman Sachs said it was abandoning its long USD/JPY trade recommendation and placing its forecasts under review.

We are closing our long USD/JPY trade recommendation and place our forecasts under review while we reassess,” Goldman Sachs said in a note.

The need to take a step back comes after the BoJ announced it would tweak its yield curve control program – designed to keep Japanese government bond yields capped at a defined target level.

Under the amended policy measure, the central bank will allow its 10-year Japanese government yields to rise as much as 50 basis points, or 0.5%, up from a previous cap of 0.25%.

The unexpected move from the BoJ – a central bank that has continued to lean dovish even as its peers’ front-load rate hikes – has sparked debate on whether this marks the start of a hawkish regime shift or a one-off tweak.

This debate – the start of a hawkish regime versus a mere technical adjustment – will likely determine the yen’s ability to inflict further damage on the greenback.

BoJ governor Governor Haruhiko Kuroda said the move was needed to correct distortions in the yield curve after global bond pressures pushed Japanese government bonds higher and shouldn’t be viewed as the beginning of a hawkish pivot.

Goldman Sachs appears to agree, believing the BoJ’s tweak represents a mere technical adjustment.

The BoJ’s basic framework – to end deflation through uber-dovish policy – remains unchanged, according to the bank but fighting the market at a time when the traders are betting on the very real possibility that the wind of change beckons for the BoJ isn’t something the bank is prepared to do, at least in the near term.

[I]n the near term we are hesitant to engage in this view … because the market is likely to raise odds of a more material BoJ shift, which is a real possibility given there has also been a shift in BoJ communication recently,” Goldman Sachs said.

Still, the bank does appear to hold some optimism for a dollar-yen comeback in the coming months, arguing the markets “are over-pricing US recession odds and under-pricing the Fed cycle,” paving the way for a boost to Treasury yields.

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