USD/JPY has been steadily declining this year, with JPY emerging as the top performer in the G10 space. USD/JPY is trading not far from new year-to-date lows just above the 150 mark, Danske Bank's FX analyst Mohamad Al-Saraf reports.

USD/JPY is trading not far from new year-to-date lows

"While US yields have remained largely flat YTD, positive macro surprises in Japan have pushed the 10-year JGB yield up by approximately 35bp so far this year."

"Recent GDP and wage data in Japan have reinforced the case for another rate hike this year, with the next fully priced hike expected by September and a total of 36bp in hikes priced for the full year."

"We believe the next hike could come before the September meeting, and we also see room for an additional hike this year, which would bring the policy rate to 1.00% - a view that markets have increasingly aligned with. We remain short USD/JPY initiated on 13 January."