USD/JPY: Likely to move higher as US yields lift off – Danske Bank

Analysts at Danske Bank forecast the USD/JPY pair will trade at 110.00 in a month, at 111.00 in three months, and at 112.00 in a year. They see higher US yields supporting the greenback. 

Key Quotes: 

“ USD/JPY has traded within the 109-110.5 range over the recent month driven largely by US yields. The Evergrande crisis has caused safe-haven flows beneficial for JPY but they have eased as signs appeared Chinese authorities would circle the problem. The “state of emergency” in big parts of the country including Tokyo looks set to end on 30 September, as the number of confirmed coronavirus cases edge lower and the number of vaccinated people has continued to grow rapidly with no signs of slowing. In mid-September, Japan passed the US on fully vaccinated. Thus, the domestic economy still has a rebound ahead.”

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

“We expect USD/JPY to drift higher, as US yields starts to climb and commodity prices remain high.”