Analysts at Danske Bank expected the pressure on the Japanese yen will wear off but not in the short term. They forecast the USD/JPY pair at 134 (1M), 134 (3M), 133 (6M) and 125 (12M).

Key Quotes: 

“With the economic recovery in Japan still hampered by COVID, domestic price pressures are likely to remain modest. Thus, the key driver of USD/JPY remains the outlook for the global economy and the energy crunch. With the US labour market still in top shape, we are not convinced global inflation pressures are yet turning and expensive natural gas over the winter will keep JPY headwinds in place.”

“Upside risks to USD/JPY come from a new surge in commodities and energy prices driving inflation and global yields higher. If global slowdown turns into a real recession, flatter yield curves and cheaper energy will drive USD/JPY lower. The risk of Tokyo intervening in FX markets has declined as JPY pressures have eased and BoJ has demonstrated a strong will to keep aiming for the inflation target without politicians interfering.”