USD/JPY: More upward potential as US economy catches up with Asia – Danske Bank

Economists at Danske Bank expect the US economy to continue to catch up with Asia. Therefore, the USD/JPY pair is set to see more upside potential.

High commodity prices to continue to weigh on 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. 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.”