Danske FX Strategy Research notes that USD/JPY has rallied sharply since mid-April, as equity markets and US yields have rebounded.
In that regard, Danske argues that the key driver for USD/JPY remains relative interest rates – most notably the 10Y US yield – and risk appetite in general.
“…Given the current divergence between commodity and equity markets, we see risks mainly skewed on the downside in the coming one to three months,” Danske argues.
Longer term, Danske sees the current level in USD/JPY is justified from a relative rates point of view.
Dankse targets USD/JPY at 114 in 1-3 months and at 116 in 6-12 months.
USD/JPY is trading circa 113.70 as of writing.
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