USD/JPY to march forward as US yields race higher – Danske Bank

FXStreet Insights Team FXStreet

USD/JPY has been thrown back and forth by surging oil prices (weaker JPY) and declining long US yields (stronger JPY) for a while now. Economists at Danske Bank expect the pair to edge higher as US yields lift off.

The inflation target remains far out of reach

“With a prolonged ‘state of emergency’ in several regions including Tokyo extended to mid-September, the domestic economy will remain weak through Q3, adding upwards pressure on USD/JPY.”

“We expect high commodity prices to continue to weigh on the yen going forward.”

“We think USD/JPY has further to go, as the US economy outpaces Asia not least due to the stronger position in the vaccine race vs. particularly Japan. 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 poses a limited risk, because they will be very careful and only take baby steps exactly to avoid a significant strengthening of the yen.”

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FXStreet Insights Team

FXStreet

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