Credit Agricole CIB Research discusses USD/JPY outlook and maintains a bullish bias and a long exposure in spot targeting a move towards 115.
"While Japan’s yield curve remains locked down by the BoJ’s YCC, US short-term rates have headed higher with the Fed’s dot plots pointing to the Committee being split down the middle on whether or not to begin hiking rates by mid-2022. FOMC Chair, Jerome Powell, also said that tapering could begin as soon as November," CACIB notes.
"But, the gentle pace at which the FOMC is expected to lift rates has led to a flattening in the UST curve narrowing the US-Japan box yield spread. This narrowing is holding USD/JPY back. Indeed, the exchange rate remains locked in a broad 109.00-110.50 range. We continue to think that higher UST long-end yields will prevail and push USD/JPY higher. We remain long USD/JPY as a trade recommendation," CACIB adds.