FXStreet reports that economists at ING suggest that an expected hawkish Federal Reserve is set to underpin the US dollar and send USD/JPY higher.

“USD/JPY has held up pretty well in the face of the drop in US 10-year yields under 1.20%. We feel that thin summer conditions and heavy Fed buying are behind the drop in US yields – such that the move will be reversed in September. That could keep USD/JPY supported even though speculators are reasonably short JPY already.” 

“Probably the biggest risk to USD/JPY now is that the Delta variant shuts down Asia and especially China more broadly – prompting a re-assessment of global growth and equity valuations. But that seems a risk case at present. Instead, a Fed sounding quietly confident can see US money market rates and USD/JPY firm up.”