Weak dollar? Maybe markets are finally believing the Fed
BoJ/Fed balance sheet vs USD/JPY
That may be why USD/JPY has fallen back to almost exactly where it was when the Bank of Japan started its quantitative easing even though its balance sheet is already some 20 percent bigger, vs a 12 percent expansion in the Fed's balance sheet over that same time period. However, this ratio is only going to rise further as the BoJ is not going to start tapering for years, and so I think this relationship is likely to hold.
(Read more: Why the Bank of Japan is right to stay 'passive')
In any event, I don't expect the dollar's weakness to last. I think these changes in central bank action are having an impact that is contrary to the banks' intended policy, as we have seen with both the ECB and BoE arguing that the market's implied path of future interest rates is too high.
The ECB and the BoE are trying new methods of easing that don't rely on their balance sheets to rectify this problem. As the Fed moves towards scaling back its emergency loosening in one way or another and these other central banks experiment with new ways of going in the opposite direction, I think the dollar is likely to resume its rise.