Who Will Win, Bernanke Or The Bank of Japan?

Over the last decade, a strengthening Yen has been associated with a steepening US Treasury yield curve, and the logic is pretty simple: when the Yen is strong, there is less competition  for American producers, and this in turn stimulates nominal economic activity.  When the Yen is weakening, on the other hand, American producers face price competition which manifests itself in lower inflation expectations and a flattening yield curve. 

We are at an interesting juncture, with the US Federal Reserve having begun its tapering sequence.  The Yen, this morning, is at 104.16, which takes out the 103.5 low reached on May 22--the day before the "taper" was first used by Bernanke.  

If the Yen continues to fall, history would suggest this is the backdrop for a flattening yield curve.  Bernanke and the BoJ are trying hard to create domestic inflationary expectations, and only one can succeed.  As the yen hits new lows, initial reactions to the tapering announcement would seem to suggest the Bank of Japan is gaining the upper hand.  We are watching the $/Yen and the US Treasury yield curve for clues.