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According to analysts from Danske Bank the USD/JPY pair has further room to move to the upside. They see the pair at 110.00 in a three-month horizon and at 111.00 in six months.  

Key Quotes:  

“The usual suspects are back as key USD/JPY drivers, and as we have seen, lower US yields take USD/JPY somewhat lower through the last couple of weeks. At the same time, soaring commodity prices have supported USD/JPY. Being one of the world’s biggest oil importers, we expect higher oil prices to weigh on the yen going forward. The “Asia” factor seems to have faded with Asian equities no longer outperforming US. We expect this to remain the trend as Chinese pentup demand wears off and the US consumer steps up on the back of reopening and big fiscal easing.”

“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.”

“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 leap in Q1has 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.”

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