USD/JPY has been probably most sensitive to the US Treasury yields and this has been the driver for USD/JPY from around mid 70ies level up to above 80. From this point on we do expect this relationship will hold somewhat, therefore we think USD/JPY can move slightly towards mid 80ies range over the next quarter. However, we expect that around those levels there is still going to be a lot of demand from Japanese exporters to hedge USD/JPY exposures. Particularly in the Bank of Japan's quarterly Tankan economic outlook survey, that was recently released, there is a question which asks exporters where they think USD/JPY is going to be traded over the next year. The survey reveals that the average level is 78, which is markedly below the current cross and suggests that the exporters will be very active in hedging their activities on many upsides in USD/JPY.
For USD/JPY our forecast for the 2Q is 85. We believe that the main driver for the pair will be strong US data, which is going to support the US Treasury yields and USD/JPY.