USD/JPY to edge higher as US economy catches up with Asia – Danske Bank

According to economists at Danske Bank, USD/JPY has further to go and forecast the pair at the 112 level in 12 months.

Key quotes

“We think USD/JPY has further to go, as the US economy will catch up to Asia as it opens up and outpaces Asia and particularly Japan in the vaccine race, although the recent leap has capped upside potential. This will continue to press for higher US yields and BoJ will remain reluctant to let JGB yields drift much higher with inflation so far off target.”

“To take USD/JPY back towards 100, we need a change in risk sentiment causing US rates and commodities to decrease again. BoJ tolerating higher JGB yields also poses some risk but they will be very careful and only take baby steps exactly to avoid a significant strengthening of the yen.”